V2 Dignity_AR_2020_Cover_BP_V1 tp 2.qxp_Layout 1 16/04/2021 13:33 Page 1 Dignity plc Annual Report & Accounts 2020 Dignity plc 4 King Edwards Court ANNUAL REPORT 2020 King Edwards Square Sutton Coldfield Dignity plc Annual Report & Accounts West Midlands B73 6AP

www.dignityplc.co.uk

Responsible and resilient through challenging and changing times V2 Dignity_AR_2020_Cover_BP_V1 tp 2.qxp_Layout 1 16/04/2021 13:33 Page 2

IFC Dignity plc Annual Report & Accounts 2020

Who we are

We are one of the UK's major funeral related service providers and the only publicly listed company in the UK operating in the funeral sector. The Group's main activities are funeral services, crematoria and pre-arranged funeral plans. Our aim is to be at the forefront of the sector in terms of quality, transparency, standards, choice and value-for-money.

Inside this year’s Annual Report

Strategic Report Financial Statements Transparent reporting

01 At a glance Group Accounts We aim to report in a transparent and 04 Executive Chairman’s review 84 Independent auditors’ report to the members integrated way to clearly reflect how we 15 Key performance indicators of Dignity plc operate. Within this year’s report we have 18 Operating review 92 Consolidated income statement also sought to address the additional 22 Financial review 92 Consolidated statement of comprehensive requirements arising from Section 172 27 Principal risks and uncertainties income 33 Viability statement 93 Consolidated balance sheet of the Companies Act 2006 and the 2018 34 Non-financial information statement 94 Consolidated statement of changes in equity UK Corporate Governance Code. 35 Corporate and social responsibility 95 Consolidated statement of cash flows 42 Section 172 Statement 96 Notes to the financial statements This Annual Report & Accounts contains forward-looking statements with respect Governance Company Accounts to the Group’s plans and its current goals 45 Chairman’s introduction to governance 144 Dignity plc Company balance sheet and expectations relating to its future 50 Governance structure 145 Dignity plc Company statement of changes financial condition, performance, results, 51 Board of Directors in equity strategic initiatives and objectives. 52 Operating Board 146 Notes to the Dignity plc financial statements 53 Directors’ statement on corporate governance 154 Financial record 58 Audit Committee report 62 Nomination Committee report Other Information 63 Report on Directors’ remuneration 81 Directors’ report 156 Alternative performance measures 162 Shareholder information 163 Contact details and advisers 164 Financial calendar

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Dignity plc Annual Report & Accounts 2020 01 At a glance Strategic report

A caring and responsible business

What we are here for and our role

We are a caring and responsible business. At its heart is a core social purpose to help people at one of the most difficult times in their lives.

It is through the ongoing dedication of our people, our commitment to responsible business practice, and by making a meaningful contribution to society, that we will ensure we fulfil both our purpose and our potential.

A core social purpose

vital frontline role & As one of the funeral industry leaders, we have played our part during the evolving and unprecedented COVID-19 pandemic. We have worked closely with the Government and wider funeral sector to ensure that we deliver the services that are needed.

By managing our business proactively, we have been able to respond, prioritise and adapt with pace and agility to these extraordinary circumstances – for our clients, colleagues and those who use our facilities. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:33 Page 5

02 Dignity plc Annual Report & Accounts 2020 At a glance continued Strategic report A strong, resilient and sustainable business

Our distinctive qualities and strengths Our Services

Funeral services (2019: 69,400) We are a major provider of funeral services 80,300 in the UK and we strive to set the highest Number of funerals conducted during 2020. standards of service and care. Dignity Funerals provides the bereaved with access to our national network of funeral 795 (2019: 820) directors, where families can arrange a service Number of funeral locations we operate personal to their needs. in the UK.

Simplicity Cremations offers less traditional, lower cost direct cremation options and smaller, family-led services, whilst benefiting from 4,900 (2019: 2,700) Dignity’s high standards of care and a national infrastructure of mortuaries and crematoria. Of the 80,300 funerals conducted 4,900 relate to Simplicity and branch direct cremation based services delivered in 2020.

Crematoria (2019: 64,800) The Crematorium and Memorial Group 74,500 (‘CMG’) is the largest single independent Number of cremations conducted operator of crematoria in Britain with a during 2020. significant portfolio of well-established and Our Strengths state-of-the-art facilities that meet the needs of the local communities we serve. • Leading the way for quality of 46 (2019: 46) client care, facilities and standards. Our crematoria provide a range of cremation services, from basic unattended cremations to Number of crematoria we operate in England and Scotland. • Strong brands and compelling traditional full services. client propositions, offering greater Our extensive, peaceful grounds allow families to choice and flexibility. remember their loved ones in a very personal way. • Leading position in the pre-arranged funeral market. • Focused on delivering excellent Pre-arranged funerals 558,000 (2019: 523,000) client service, and positive We are one of the UK’s largest providers engagement and experience. of pre-arranged funerals. Number of active pre-arranged funerals as at 25 December 2020. • Unique in our service capabilities Our pre-need business allows clients to pre-arrange their funeral through our national as a funeral director, a crematoria network of funeral locations and established operator and as a pre-arranged relationships with many affinity partners. funeral plan provider. • The only provider with a national network of funeral locations and crematoria. • Leading position in the direct Our People, Culture and Values cremation market. Professionalism, resilience, respect and compassion has been • An experienced team and vital in the face of the unprecedented challenges and change Operating Board. during 2020. We have sought to ensure that our people and • Committed to delivering a the bereaved families we serve across the UK have been progressive, innovative and protected and supported during this time. increasingly more digital-led Our colleagues across the business have worked flexibly and service for clients. determinedly to deliver services to the highest standards and with the care and commitment they always do.

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Dignity plc Annual Report & Accounts 2020 03

Generating sustainable financial and non-financial value Our Stakeholders Summary 2020 Challenge and Sustainability and Opportunity Engaging with a range of stakeholders informs our Our business and people have truly been tested by decision-making, builds trust and is key to delivering the challenging events of 2020. Our response has our strategy in the long-term. demonstrated the strength and resilience of our business, the dedication of our people in whichever role Our stakeholders include our clients, both our Pre-Need they play, and ultimately reaffirmed our commitment Funeral Plan holders and the Trustees of the related to our core social purpose. Funeral Plan Trusts, communities, colleagues, investors, suppliers, pensioners and trustees of our pension funds, We have an opportunity to reposition the business and policymakers. For our business to succeed we need along with a clear sustainable growth plan: to maintain strong relationships and open engagement • The final outcome and conclusions of the CMA with them all. investigation is now determined; We must dedicate time to understand their individual • Our preparations for regulation of the funeral plan needs, expectations and aspirations, as meeting or market by the FCA are progressing; exceeding them is an essential part of the way we create and deliver sustainable value. • Our root and branch review is scheduled to conclude in the second quarter of 2021; and Sustainability is about the actions we take to fulfil our purpose and our potential. We remain committed to • We are long-term advocates of improving standards, driving a sustainable business that is both socially and quality, transparency, and providing greater choice in environmentally responsible and commercially the funeral sector. successful. We are determined to grow both funeral and cremation market share on a sustainable organic basis whilst safeguarding our future success for the benefit of all our stakeholders.

Summary Group Financial Performance 2020

Underlying revenue(1) Operating profit Underlying operating profit £314.1m £15.9m £55.7m (2019: £301.3m) (2019: £44.8m) (2019: £63.3m)

Dividends paid in the period Basic (loss)/earnings per share Underlying earnings per share £nil (51.0)p 46.6p (2019: 15.74p) (2019 restated: 61.2p) (2) (2019: 60.6p)

Number of active pre-arranged funerals Cash generated from operations Underlying cash generated from operations 558,000 £62.7m £76.4m (2019: 523,000) (2019: £64.6m) (2019: £71.8m)

(1) Total underlying revenue was £314.1 million (2019: £301.3 million). On a statutory basis the Group recognised Funeral services revenue of £274.8 million (2019: £262.1 million) and Crematoria revenue of £82.7 million (2019: £76.8 million). Pre-arranged funeral plans are not a separate division in statutory terms. (2) Prior year basic earnings per share has been restated due to a prior year adjustment in relation to taxation. See page 96 for further details. Alternative performance measures (‘APMs’) The Board believes that whilst statutory reporting measures provide financial performance of the Group under GAAP, APMs are necessary to enable users of the financial statements to fully understand the trading performance and financial position of the business. The APMs provided are aligned with those used in the day-to-day management of the business and allow for greater comparability across periods. For this reason, the APMs provided exclude the impact of consolidating the Trusts and the changes which relate to the application of IFRS 15 and adoption of IFRS 16, all of which are considered to mask the underlying trading performance of the Group, as well as non-underlying items comprising certain non-recurring and non-trading transactions. Further detail may be found on pages 156 to 161. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:33 Page 7

04 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review Strategic report

Maintaining our resilience and focus through change Clive Whiley, Executive Chairman | In a unique and challenging year, it is the dedication of our staff that has enabled continued delivery of our services, supported by a refreshed strategy and management team.

Overview The year under review represents my first full year as Chairman and proved to be a unique and challenging period due to the conjunction of events surrounding the COVID-19 pandemic, ongoing regulatory considerations and the Transformation Plan. However, first and foremost the Board is grateful for the constant dedication of our staff, whichever role they perform in the business, as they continue to respond appropriately to people losing loved ones at a time when their ability to grieve and to gain closure remains adversely impacted by the pandemic.

Our people are fundamental to both the Group’s success and sustainability and I would like to thank them for their significant contribution, resilience and commitment to service during what has been an exceptional time for society, bereaved families, our people and our business. Whilst COVID-19 featured heavily in our day-to-day activities into the first quarter of 2021, we did not lose Strategic challenges sight of the numerous project work-streams initiated in Of the triple challenges highlighted, COVID-19 directly contributed the last year, aimed at affording the Board the time and to a total UK 2020 annual death-toll of 663,000, an increase of collateral necessary to allow the business to self-heal, 14 per cent over 2019, representing the highest total UK deaths without recourse to dilutive funding initiatives. since 1918, which witnessed the end of WW1 and the Spanish Flu pandemic. Moreover, the year-on-year impact swung from an increase of one per cent in Q1, to plus 47 per cent in Q2, minus two per cent in Q3 and back to plus eight per cent in Q4 with the concomitant stress on our funeral and crematoria operations: notwithstanding the fact that we deliberately maintain a degree of structural overcapacity with, for example, over 20 per cent of private sector mortuary capacity.

At the peak of the pandemic the crisis led to a constricted service offering, in the interests of the welfare of our staff and clients, alongside higher PPE and temporary staff expenditure which translated into underlying operating profit falling by 12 per cent to £55.7 million and underlying average revenue per funeral of £2,522 (2019: £2,930). Government guidance continues to restrict the attendance at funerals with limits for all venues, remaining at 30 in England, 20 in Scotland and 25 in Northern Ireland. In Wales as many attendees as the venue can hold whilst respecting social distance and COVID-19 Safe protocol is currently allowed.

Deaths in Great Britain Number of deaths Latest figures from the ONS indicated COVID-19 deaths in Great Britain (where coronavirus (COVID-19) was mentioned on the death certificate) at 87,500 in 2020. 900,000 220,000 2017 2018 2019 2020 800,000 200,000 700,000 600,000 180,000 500,000 160,000 400,000 300,000 140,000 200,000 100,000 120,000 Source: Office For National Statistics 0 100,000 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Q1 Q2 Q3 Q4 V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:33 Page 8

Dignity plc Annual Report & Accounts 2020 05

We also had to contend with the ongoing CMA market investigation, launched in March 2019, which reached an early conclusion with the publication of the Final Decision Report issued on 18 December Strategic update 2020 (detailed on pages 12 and 13). We engaged openly and collaboratively with the CMA throughout the investigation and Future Strategic Direction look forward to working with the regulator and the Government Whilst COVID-19 obviously featured heavily in our day-to-day to ensure the package of remedies work for consumers and are activities into the first quarter of 2021, we have not lost sight of implemented effectively across the market. the numerous project work-streams initiated in the last year, aimed at affording the Board the time and collateral necessary In fact, Dignity has been working to raise awareness regarding to allow the business to self-heal, without recourse to dilutive issues of transparency and consistency in quality of care across the funding initiatives. In that context: funerals sector for a number of years and we are determined to represent a flagship within the industry for quality and governance. • The root and branch review is scheduled to conclude in In addition, we welcome the decision to introduce statutory the second quarter of 2021; regulation to pre-arranged funeral plans and are working with • The refocusing of the investment management strategy for the FCA as it accelerates the development of its future approach the pre-need Trusts successfully validated the combined trust (see page 10). assets at a level of some £1 billion alongside implementing a more defensive risk profile and significantly reduced However, it is the shortcomings exposed by the root and branch annual fees; review, arguably self-inflicted by torpid strategic direction over the last decade, as exacerbated by the extreme volatility in volume • A record 558,000 people have pre-arranged their funerals created by the pandemic, that exposed the business most during with Dignity, a ten year CAGR of 10 per cent and we continue the year. The Transformation Plan, launched with great fanfare to strive to set the industry standard; and at considerable expense in 2018, in my opinion introduced The consultation paper on the proposed FCA approach to too narrow a focus upon one element of the Group, without regulation of funeral plans was published on 2 March and, considering the capacity to grow the business organically across its if enacted as published, would have a profound impact on full bandwidth. In short, that was tantamount to admitting defeat the industry. This is notwithstanding the core strength of our as a Group that had elected for many years to utilise the majority Funeral Plan Trusts, with assets at a level of some £1 billion of its capital investment buying its way out of deteriorating funeral and our ability to perform the at need funeral commitment market share (2001: 491 funeral locations and 11.8 per cent funeral from within our own funeral division. Accordingly, we are in the market share; 2019: 820 funeral locations and 11.7 per cent funeral process of reviewing the possible ramifications for our longer- market share). At best that consolidated the heritage of strong term instalment funeral plan sales and the anticipated higher family businesses and staff that perform well to this day, at worst cancellations thereon and will report on that in due course; business integration ceased at legal completion: leading to Dignity • We commissioned an independent valuation report for our essentially becoming the industry retirement plan for independent standalone crematoria operations, which retain the benefit funeral directors. of several active planning consents as well as the marginal

capacity to perform a materially higher volume, as both a Fortunately, over the same period our cremation market share datum from which to determine future capital structure and has grown by 70 per cent (2001: 21 crematoria and 6.5 per cent a defence in the event of an unwelcome approach for the cremation market share; 2019: 46 crematoria and 11.1 per cent Group; and cremation market share) benefitting from a best-in-class capital development programme, including nine new build crematoria • The ongoing success of Simplicity Cremations, launched as a coming on stream as a result. challenger brand in December 2016, which delivered a record of 4,300 direct cremation based services in 2020 (an increase Transformation Plan of 106 per cent) has reinforced our determination to ultimately The Transformation Plan, which was paused indefinitely on become the sector leader. 3 April 2020 with the onset of the pandemic, was expected to cost £50 million over a three year period to deliver mid-range EBITDA As detailed above, I am satisfied that the Board now has a benefits of approximately £10 million per annum. The root and very clear understanding of our strategic objectives, with an branch review, initiated upon my appointment, identified benefits overarching desire to significantly grow both funeral and of £8 million in 2020 alone, alongside preserving cash spending cremation market share over the next five years on a sustainable on transformation of in excess of £30 million, simply from better organic basis: whilst preserving our core values built around housekeeping. Furthermore Project 20:20, which is the final quality, providing excellent client service and high standards component of the root and branch review, will now shoulder the of care. burden of effecting appropriate changes to staff working practices within our funeral division. This project is designed to determine the optimal scope, size and logistics of our care centre and branch network, having due regard to both the extensive learnings from the Transformation Plan alongside output from the pricing, Completing the Safeguarding Delivering a product and other trial propositions in train. root and branch our future sustainable review success growth plan V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:33 Page 9

06 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review continued Strategic report

Board changes We are currently engaged in seeking a new Chief Financial Officer As noted, the onset of the pandemic forced us to accelerate the and we will continue our search for an appropriate candidate for root and branch review, alongside pausing the Transformation Plan the role of Chief Executive Officer, coterminous with the outcome of in order to preserve cash resources, ahead of anticipated volatility in the root and branch review. Following these proposed appointments, funeral and cremation volumes over both 2020 and 2021, also we believe that we will have a plc Board that is appropriate for heralded wholesale change at board level, where: a company of our size, nature and circumstances. Furthermore, we now have a cohort of Non-Executive Directors with deeply • On 11 March 2020 Dean Moore joined the Group as a Non- embedded and relevant skills who are directly contributing to the Executive Director, succeeding as Chair of the Audit Committee change process and interface cohesively with the Operating Board. on 11 June 2020 before becoming Interim Chief Financial Officer on 14 December 2020; As we approach the end of this period of major change our management needs and requirements have evolved as we become • On 3 April 2020 we agreed with Mike McCollum, who had been a singularly focused upon our future strategic direction. Accordingly, significant influence behind the Group for over twenty years, that we have also refreshed the majority of our Operating Board the approaching strategic crossroads represented an appropriate including identifying a strong candidate for the role of Chief time for him to hand over as Chief Executive Officer and I agreed Operating Officer and welcoming several new additions to our to step up to the role of Executive Chairman; Senior Leadership Team: bringing renewed diversity alongside • On 3 April Jane Ashcroft, who had completed her contractual term relevant skills and expertise. as a Non-Executive Director, stepped down from the Board; • David Blackwood, who served as Senior Independent Director and Finally, we are fortunate to have a workforce that demonstrates as Interim Non-Executive Chairman prior to my appointment on a professionalism, pride and empathy in their work and we are 26 September 2019 and Chair of the Audit Committee thereafter, placing a renewed focus upon long-term staff wellbeing, in addition did not seek re-election at the AGM held on 11 June 2020; to the advanced PPE and vaccination programmes specific to the pandemic, as we seek to enhance the cohesion between the Board • Gillian Kent, who has strong digital transformation experience, and the workplace. joined the Board on 11 June 2020 as an independent Non- Executive Director and as Chair of the Remuneration Committee; Dividend Policy • On 14 December, we reached an agreement with both Steve The Company has not paid a dividend since June 2019 and the Whittern, Finance Director and Richard Portman, Corporate Directors do not expect to pay dividends until the business Services Director, to step down from the Board, which they both has returned to a sustainable and stable financial footing, did in December; notwithstanding the fact that the Group retains significant cash resources and remains cash generative. The Directors understand • Andrew Judd, Director of the Group’s funeral operations and a the importance of optimising total shareholder return, as well as member of the Operating Board, joined the Board as an additional the need to maintain a balance between different groups of Executive Director with effect from 14 December 2020; and stakeholders, and it is the Directors’ intention to return to paying • Paul Humphreys joined the Board on 23 February 2021, as an a dividend as soon as they believe it is financially prudent for the independent Non-Executive Director and as Chair of the Audit Group to do so. Committee.

Our response to COVID-19 and how we have considered Summary outlook stakeholders during this time Unfortunately, notwithstanding the significant progress the • Our commitment to our core social purpose and to being a business has made since my appointment, our largest shareholder responsible business is central to the way in which we operate. Phoenix Asset Management Partners, with whom we believed This has been the governing principle behind our response to we were having a constructive dialogue in relation to the future the COVID-19 pandemic. The Board has continued to monitor strategy of the business, has chosen this moment to seek to its responsibilities to its stakeholder groups. Good engagement assert what would, in effect, be executive control at Board level. has been crucial in understanding the views of our stakeholders in order to make informed decisions during this period of Whilst, in my view, the Group is now sufficiently robust to unprecedented challenge. sustain this wholly avoidable and unnecessary challenge, it is • Throughout this Annual Report, we provide examples of how we: nonetheless an unwelcome distraction as we remain dedicated to take into account the likely consequences of long-term decisions; dealing with the ongoing fallout from the pandemic. To minimise build relationships with stakeholders; understand the importance disruption, the independent directors have been charged with of delivering for our clients; engaging with our employees; the taking the necessary steps to convene the required general impact of our operations on society, the communities we serve meeting of shareholders and they will share their views on the and the environment we depend on; and attribute importance to resolutions to be considered at that time. It will then be for behaving as a responsible business. Details of how the Board has shareholders to decide on the merits of the Phoenix proposal. complied with Section 172 and how we engage with stakeholders can be found on pages 42 and 43.

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Dignity plc Annual Report & Accounts 2020 07

Accountability

A strong and experienced Operating Board perspective Operating Board Ensuring the client is at the heart of every decision we make is in our We have identified clear priorities to be DNA and crucial to the delivery of our strategy, our operational and delivered through the Group going forward, commercial focus. all driven by our refreshed strategy. The Board has taken the opportunity to Our client-led approach builds on our purpose and distinctive qualities consider the most effective management and strengths. It positions us well to respond to the changing market structure to lead and deliver this strategy, environment and the opportunities this presents. with a refined Operating Board, consisting of the following members:

Clive Whiley Executive Chairman Andrew Judd is responsible for the Dean Moore A strong and 1 provision of funeral services through caring business our network of colleagues and funeral Interim Chief Financial Officer locations ensuring we provide a with a core consistently high standard of client Andrew Judd social purpose Executive Director of Funeral Operations service and care for the deceased. Steve Gant Crematoria Director

Steve Gant is responsible for the Paul Toghill Committed to Director of Pre Arrangement operation of our crematoria and 2 cemeteries and provision of memorials. remaining Mark Hull He is a long-standing advocate for high- operational Marketing Director quality facilities in the industry with continuous investment and development. and keeping Alan Lathbury people safe Business Development Director

Paul Toghill has responsibility for Dean Moore, Interim Chief Preparing for Dignity Pre Arrangement including 3 proposition, distribution, marketing Financial Officer effective regulation of and operations. He is also preparing the business for regulation of the In light of the management and Board the funeral funeral plan market by the Financial changes, Dean Moore, who joined the plan market Conduct Authority (‘FCA’). Group as a Non-Executive Director in March 2020, was appointed as Interim Chief Financial Officer in December. In his interim Mark Hull is responsible for delivering CFO role, Dean is focused on working with Compelling the Operating Board to safeguard the the Group’s marketing strategy including 4 brand development, digital marketing propositions, future success of the business – delivering and product and price proposition, in positive client both value for shareholders, and a addition to providing market and client experience analysis. experience and sustainable growth plan. engagement

Alan Lathbury has led Dignity’s open Responding to and constructive dialogue with the CMA’s We remain determined to grow both the CMA in a 5 investigation into the provision of funeral funeral and cremation market share changing and and cremation services. He is also responsible for the development of our and safeguard our future success for competitive crematoria business through acquisition, the benefit of all our stakeholders. market public/private partnerships or construction of new locations. Clive Whiley, Executive Chairman

Clive Whiley as Executive Chairman The following pages outline the Operating provides leadership, advice and A leading 6 direction to the Operating Board by Board’s perspectives and approach. position in facilitating the decision-making. He is the direct also responsible for developing the Group’s long-term business strategy, cremation Full biographies for the Operating Board can vision and values pending recruitment market be found on page 52. of the new CEO. Details of the Financial review can be found on pages 22 to 26. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 11

08 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review continued Strategic report

1 2 3 4 5 6 A strong and caring business with a core social purpose Andrew Judd, Executive Director of Funeral Operations | We are honoured to serve our communities, continually providing vital services with expertise and compassion.

We implemented significant changes I pride myself on having first-hand to our working practices and provided experience of arranging and conducting enhanced personal protective equipment funerals built across a lifelong career in an to help ensure everyone’s safety in all industry I am hugely passionate about. It is situations and environments. Teams these insights I will bring wholeheartedly used their skills to navigate complex and into our discussions and ultimately our frequently changing guidelines on caring decision-making. for the deceased, some of which varied The strength of our people during across the four devolved nations where the year has been nothing short we offer our services.

of inspirational. They remained Above all, we put clients first in extremely accountable in their roles as critical demanding circumstances. Funerals should workers and continued to take the always be deeply personal occasions, which Supporting our people and greatest care. is why colleagues worked tirelessly to bereaved families through the ensure the preferences and individual pandemic wishes of families still found space for expression, even amidst the restrictions Impact of COVID-19 on funerals Rising to the challenge required to stay COVID-secure. Arranging and conducting funerals that are Dignity works in a unique industry and memorable and dignified is what we do, succeeds by helping people through difficult Constantly adapting but the pandemic has placed restrictions times with respect, openness and care. While often borne out of necessity, our on how we can deliver these services. experiences this year have highlighted Our operational colleagues are integral to With limited numbers of mourners this success, representing one of the most alternative ways of doing things that have the potential to enhance our proposition able to attend a burial or cremation, we important interfaces in the business – have adapted the way we work to offer Perspective our service to clients. going forward. | an alternative approach we call our Timeless Funeral. We endeavour to make a positive difference By embracing digital technology, we can to an essential societal need, but 2020, and interact with our clients at a distance, if that This involves an intimate funeral for close specifically limitations caused by the COVID- makes them feel more comfortable, as well family members now, who can still say 19 pandemic, have tested our collective as in person. It enables funeral services to goodbye in a meaningful, respectful and resolve like never before. be shared with family members and friends safe way. who are unable to attend and helps us plan The strength of our people during the year for future opportunities to honour and Then, once restrictions are fully eased, has been nothing short of inspirational. remember those who have died. we can arrange a suitable memorial or They remained accountable in their roles celebration of life service at a later date, as critical workers and continued to take the I have already referred to the strain the more in line with the client’s original greatest care, perhaps not with the public pandemic placed on us operationally, but expectations, as well as the wishes visibility or acclaim that other frontline it also made clear the importance of of the deceased.

Quality of Client Care Quality of Client Care responders had, but always with a level of safeguarding the mental health of our professionalism and sensitivity that clients people. We are actively promoting a safe appreciated. working environment where anyone can voice concerns or anxieties and access help. Together we arranged and delivered more funerals for our clients than at any other As attention turns to the year ahead, time in our history, even when our we know the challenges presented by operational capacity was under strain. COVID-19 will remain for some time yet. Experience is on our side and I am confident that same resilient attitude of our people Financial summary 2020 H1 H2 FY £m £m £m will come to the fore again.

Underlying operating Our scope, however, must be wider than profit – 2019 30.5 25.8 56.3 COVID-19. We need to constantly adapt Impact of: to changing consumer preferences and Number of deaths 20.3 3.3 23.6 respond appropriately to issues raised by Market share 4.4 0.1 4.5 the CMA through its market investigation. Average revenues (19.0) (11.3) (30.3) This focus on client needs resonates firmly Net cost base changes (2.5) (1.6) (4.1) with us and is absolutely the right thing Underlying operating to do and is reflected in my recent profit – 2020 33.7 16.3 50.0 appointment to the Group Board. See Operating Review for further details. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 12

Dignity plc Annual Report & Accounts 2020 09

1 2 3 4 5 6 Committed to remaining operational and keeping people safe Steve Gant, Crematoria Director | A long-standing advocate of high standards in the industry; continued investment and development.

60 colleagues were upskilled, and each Leading the sector in this way was crematorium partnered with a neighbouring instrumental in assisting as many mourners CMG facility to provide greater flexibility as possible to participate in the funeral of resources. during lockdown.

Restrictions to funerals, such as the number Enhancing our locations of attendees or the closure and re-opening As a long-standing advocate of high of cemeteries, crematoria grounds and standards, we continually invest in our The CMG has worked tirelessly offices to visitors, has presented the crematoria to ensure we have modern to create an environment where challenge of keeping the public informed facilities that meet the changing needs about the services we were able to provide of local communities or to react to bereaved families can safely say within these guidelines. operational needs. a respectful goodbye to their loved ones. We also witnessed an increased demand for While we continue our long-term programme unattended direct cremations. We adapted of investment and refurbishment, we to meet this challenge whilst continuing to sometimes need to respond quickly to provide facilities for those that wanted a incidents outside of our control. During more traditional cremation service. the year, Haltemprice and Randall’s Park Adapting to change crematoria respectively suffered damage 2020 was an extraordinary year. I am very Protecting our community and our from fire and flooding. We took the proud of how The Crematorium and colleagues opportunity to not only refurbish these Memorial Group (‘CMG’) responded to The safety of our visitors and colleagues is crematoria, but also to modernise them challenges that none of us had previously one of my greatest priorities. To help reduce in line with our other flagship facilities. faced in our careers. Our commitment to transmission of COVID-19 and ensure that remaining operational has been evident social distancing guidelines were followed, Looking forward

and we continued to provide a vital service we have invested in PPE, perspex screens I am confident about the future of CMG and Perspective throughout the pandemic. in our public offices and created one-way our ability to serve both funeral directors | systems at all our crematoria. We have also and the bereaved in our local communities. CMG has been active in encouraging a ensured there is enough time between consistent, sector wide response to the services to thoroughly sanitise our facilities. We will continue to respond to the pandemic by local authorities, private challenges of the pandemic but will also crematorium operators, industry bodies Maximising our investment in technology endeavour to future proof our facilities and and the funeral directors that use our In recent years, we have invested in audio install the latest technology, so we set a high facilities. We have met weekly with central visual equipment at the majority of our bar for the crematoria sector in terms of government to offer our expertise and crematoria which this year has proven to standards and choice. regularly shared information about our be a timely and invaluable addition to service capabilities with Local Resilience the services we offer. We can provide Forums. personalised tributes to the person that Financial summary 2020 H1 H2 FY died, but also record or webcast the funeral £m £m £m Due to the pandemic, we have needed to for those that cannot attend the service. Underlying operating be flexible and make significant changes to profit – 2019 20.8 17.6 38.4 the way we operate. This has included the During the first half of the year our Impact of: provision of additional service slots during installation programme was accelerated Number of deaths 7.4 0.4 7.8 at the remaining sites. weekdays or weekends. As just one example Market share 0.9 0.1 1.0 Service Delivery & Standards of our continuity planning, approximately Average revenues (4.3) 1.4 (2.9) Cost base changes (1.1) (0.4) (1.5) Clear and accessible advice Operating safely Underlying operating From supplies of PPE, to detailed operational Stay at home instructions shifted client profit – 2020 23.7 19.1 42.8 guidance and the installation of protective focus away from locations and more screens, we have provided colleagues with towards our digital information channels. See Operating Review for further details. the equipment and knowledge they need to Dignity’s funeral and crematoria websites provide essential services in a COVID-safe way. were regularly updated with comprehensive advice on planning and attending a service Easing the burden in line with changing COVID restrictions. Our Stay Well campaign has promoted We also shared insight and responded wellbeing and positive mental health. to general queries via our social media All colleagues have access to our Employee platforms. Assistance Programme so they can confidentially seek professional support at any time. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 13

10 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review continued Strategic report

1 2 3 4 5 6 Preparing for effective regulation of the funeral plan market Paul Toghill, Director of Pre Arrangement | Statutory regulation presents a significant opportunity to create a market that consistently delivers the best outcomes for all consumers.

We have also continued to grow our of the potential unintended consequences business through our corporate partners, a commission ban would have in removing including testing different distribution quality distributors that provide a valuable models and some innovative products customer service from the market as well shaped around specific client needs. We as those that are undermining the industry. launched a number of new partnerships in We have also taken a decision to reduce As one of the UK’s leading providers 2020, which has given us the opportunity to our instalment terms on the majority of our of pre-arranged funerals, Dignity is grow our volumes further. In addition, 2021 plans from 25 to 10 years with effect from a long-term advocate for stronger will see us launch a number of initiatives to May. We will be reviewing alternative low- grow and develop our funeral director and cost product options in the coming months. market controls. We welcome the direct distribution models. decision to introduce statutory Committed to a move towards regulation and are working closely In addition to funeral plans we continue to a better market with the FCA as it develops its work alongside a number of large UK insurers Ahead of statutory regulation, we have future approach. to provide funeral propositions which bolt been working diligently to ensure the FCA on to their whole of life assurance products. readiness of our business. We are already Market context an organisation that has market-leading, In an unprecedented year, Dignity’s funeral Regulation and the funeral plan market feature rich products, competitively priced planning business has demonstrated its In March 2020, HM Treasury announced that with high service standards. The majority resilience and an ability to deliver a strong prepaid funeral plans would be subject to of our team already have regulated market performance, despite the distraction regulation by the Financial Conduct Authority backgrounds, as do many of our corporate and disruption of external factors. (‘FCA’). This decision followed several years partners, such as those in the building of campaigning by Dignity. We believe society and insurance space.

Perspective Whilst COVID-19 has taken its toll on the regulation will prevent the small number | wider societal and economic environment, of unscrupulous firms undermining what Despite any impact the current drafting we have continued to provide clients is otherwise a responsible industry. On may have on our volumes as a result of a exemplary levels of service, adapting and 2 March 2021 the FCA published their commission ban, we remain confident that being flexible in the environment in which consultation paper with their proposed Dignity is in a strong market position, and we have been operating. This client-focused approach to regulation. that we will be able to deliver products and adaptability is a trait we pride ourselves on, a service that will meet and exceed the this year seeing both growth in our core If the FCA rules are enacted in the way regulatory standards set to be established funeral plan offering as well as in our direct they are currently drafted they will have a across the market. cremation funeral plan model. Our position profound impact on both the wider industry of strength in being both a funeral director and Dignity. We welcome the opportunity to and funeral plan provider allows us to work closely with the FCA over the coming continue to offer clients both a competitive months to ensure the rules provide the price point and a market-leading, feature much needed consumer protection, but also rich product proposition. supporting the FCA in their understanding

Helping consumers make informed decisions Regulation timeline

Pre-need Market Regulation Market Pre-need 2019 2021 2026 June HM Treasury consult on March consultation paper issued. FCA to evaluate the Providing consumers with high statutory regulation through April responses to consultation effectiveness of their standards and value: the FCA. to be submitted. measures. Q3 Policy Statement with Final Rules will be published. Value – we offer some of the most September FCA application open. comprehensive plans on the market, underpinned by our cremation 2020 2022 disbursement guarantee. March HM Treasury confirmation. July FCA to regulate November HM Treasury lay funeral plans. Choice – we deliver a wide range of choice, required legislation. flexibility and price options. Trust – we provide funeral plans Planning ahead for peace of mind consumers can trust and know that their money is secure. Quality – we are committed to high-quality 1,089,000 service standards and improving outcomes Pre-arranged funerals for consumers. We have already helped more than 1,089,000 customers plan for their funerals in advance, of which 558,000 remain outstanding. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 14

Dignity plc Annual Report & Accounts 2020 11

Funeral Notices We offer a complementary online Funeral Notice service providing our clients with a simple and respectful way of sharing the details of their loved one’s funeral online with family and friends. • 23,750 clients published a Funeral Notice in 2020. • Over 4.2 million views of a Funeral Notice. • Handled over £2.5 million in donations to clients’ 1 2 3 4 5 6 chosen charities through Funeral Notices. Compelling propositions, positive client experience and engagement Mark Hull, Marketing Director | Providing greater choice and flexibility is an important part of Dignity’s broader offering to clients, enabling them to engage with us in a manner that suits them; to choose a service that works best for them, whilst we continue to take the greatest care of our clients. It is central to our reputation and relationships and key to our ability to create value and grow market share. A leading digital offer information packs and we’ve enabled Like many businesses today, our client more people to view funeral services journey now typically begins online. In 2010, through streaming. only nine per cent of our Dignity Funeral clients found our details through the internet, Providing greater choice and flexibility last year it was over half. For Simplicity The pricing of funerals is complex and We are committed to ensuring clients Cremations with no physical branches, every requires testing to ensure that it’s easy for achieve positive outcomes through single Simplicity client will have started online. the bereaved to understand exactly what they are paying for. The pace of change all their interactions with us, evolving Therefore, it is essential that we make it easy and evolution in the funeral market has to meet their changing needs and for potential clients to find us online then accelerated significantly with increased expectations and providing greater provide meaningful help and advice when demand for personalised funerals, products choice and flexibility. they reach our websites. Our websites such as direct cremation and woodland provide comprehensive guidance from burials; and specialist needs in areas of the subject matter experts on everything to do UK where traditions, strength of religious with funerals or funeral plans. Each branch beliefs and the demographic make-up are also has a micro-site containing localised all changing. information about that business and its products and services, including pricing. During 2020, we constantly trialled different products and prices and we haven’t been We have achieved a lot in the past three afraid to try alternatives that benefit both years – our combined website traffic has the business and clients. Over 250 branches grown from just over 1 million hits in 2017 to currently have comprehensive price lists

5.13 million in 2020. Our digital channels are online, with the remainder to be updated Perspective

continuing to generate increasing volumes by Summer 2021. | of calls into our branches, enquiries to our Simplicity call centre and sales of Funeral An award-winning team Plans. We have been awarded the Feefo I am very proud of the team I lead and our Platinum Trusted Service Award for both continued progress in creating a leading Simplicity and Dignity in 2020 and we passed marketing function that attracts and retains 10,000 online reviews for our local businesses exceptional marketing talent. In support of with an average rating of 4.89 out of 5. this, I am delighted that our work for Dignity and Simplicity has been recognised in 2020 Providing digital solutions during with accolades at both the Marketing Society the pandemic Brave Awards and the Chartered Institute The pandemic has increased our clients’ of Marketing Excellence Awards. digital interaction with us. Our websites provide the latest information and help 42.5 per cent increase in call volumes clients understand what type of funeral is still Our website continues to provide an possible within the Government restrictions increasing volume of calls into our local – both through our funeral business and at businesses, with 228,673 trackable calls in our crematoria. We adapted our processes 2020 (+42.5 per cent year-over-year). and products, including distanced arrangements being made using digital Creating a clear brand identity We continue to develop the identities of the Group and its component businesses. Digital trends In the past, funeral directors had little need 5.13 million for marketing, however, in an increasingly We have achieved a lot in the past three As digital adoption trends evolve we competitive sector, with demand for a years – our combined website traffic has continue to invest in technology and expertise wider range of products, it’s imperative to grown from just over 1 million in 2017 to to ensure we can make it easy for people to differentiate ourselves from other providers. Reputation & Relationships Brands, Strong 5.13 million in 2020. find us online and that their digital experience is supportive and useful. The role of technology during the The way we market our business has changed a great deal in the past three years, COVID-19 pandemic but there remains a lot to do. To continue We adapted our processes and products, 3.9 million to create value and grow market share we including distanced arrangements being use a blend of national and local marketing, made using digital information packs and Visitors to our Dignity website we’ve enabled more people to view funeral During 2020, we received 3.9 million visitors utilise the latest tools and techniques and services through streaming. to www.dignityfunerals.co.uk. ultimately make the decision for the client to use us an easy one. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 15

12 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review continued Strategic report

1 2 3 4 5 6 Responding to the CMA in a changing and competitive market Alan Lathbury, Business Development Director | The funeral sector remains fiercely competitive and continues to evolve notwithstanding the impact of COVID-19. The CMA’s investigation into the sector provides a significant opportunity to align standards and protect consumers.

The UK funeral market CMA Market Investigation The UK funeral market is becoming more dynamic – it is more digital than ever before, Overview and more driven by the evolving client In November 2018 the CMA announced its needs. However, in 2020 the operation of investigation into the funeral and crematoria the funeral industry was largely determined industry. This came 20 years after the last Dignity has engaged openly, and by the necessary Government restrictions study of the sector by the former competition constructively with the CMA since the put in place to reduce COVID-19 transmission regulator (Monopolies and Mergers market investigation into the supply rates. The long-term effects of these Commission) and followed several months precautions and the impact on consumer of market engagement. The CMA sought of services by funeral directors at behaviour will emerge as the restrictions to ‘review how well the market works and the point of need and the supply of are lifted. whether consumers are getting a good deal.’ crematoria services was announced in 2018 and strongly supports the Scale and structure of the market What followed was two years of engagement opportunity to improve standards The funeral director market remains very with providers in the sector, including Dignity, within the sector. fragmented, with approximately two-thirds as well as wider calls for evidence from third of funeral directors being small owner sector organisations (such as bereavement managed businesses. There are charities and consumer groups). approximately 300 crematoria in the UK, with circa 64 per cent owned by local The CMA has concluded that consumers authorities. It is estimated that three find it intrinsically challenging to purchase a quarters of all funerals result in a cremation funeral and can be hindered by lack of easily with the remainder being burials. accessible and comparable information,

Perspective an inability to observe the quality of care |

Market Drivers Changes in the competitive dynamics provided, and by barriers to entry and local of the sector concentration in crematoria services. Societal The funeral market is already extremely • The way people arrange a funeral is competitive; however, more can be done to Dignity’s participation and response changing – moving away from tradition improve the ability of clients to exercise the During the investigation we have responded and becoming increasingly digital and choice that exists, especially through greater to the formal CMA process, whilst also personalised. pricing transparency. The CMA process has offering sector expertise through our proposed measures to help address this engagement with the regulator. Our input Competition across the market. has included:

• To ensure the sector remains • Over 11 responses to CMA “Requests Deaths in Great Britain competitive, it must evolve and For Information” (‘RFI’). modernise services in a way that better In 2020 initial total estimated deaths in meets client priorities and expectations. Great Britain for 52 weeks was 663,000, • Supply of thousands of historical e-mail 14 per cent higher than the 52 weeks in correspondence. Regulation 2019. Some of the Group’s key performance • Direct engagement via eight face-to-face • Dignity has been leading the call for indicators rely on the total number of or virtual meetings with the CMA team. regulation and higher standards in the estimated deaths for each period and this funeral sector. information is obtained from the Office for As part of our contributions and evidence National Statistics (‘ONS’). Although annual to the regulatory process, we hosted deaths have declined significantly since visits with both CMA panel members and the early 1990s from 640,000 to a low of its wider executive team. This offered a 539,000 in 2011, the last six years have seen platform for Dignity to showcase its market- Market Context & CMA Investigation Context Market deaths above that level. The ONS (2019 leading services, for both front and back based projections) expects long-term Impact of COVID-19 of house facilities. increases in the number of deaths, but The whole of the UK has been affected these projections have been impacted Key considerations we’ve communicated by COVID-19 and this has had an as a result of COVID-19. to the CMA include: unparalleled impact on the number

of deaths registered in 2020. Latest • Ensuring that service elements of the funeral process were fully understood and figures from the ONS indicated COVID-19 deaths in Great Britain assessed, alongside other key aspects, such as price and transparency. (where coronavirus (COVID-19) was mentioned on the death • Strongly recommending that any certificate) at 87,500 in 2020. regulation must be independent, consumer-focused, and implemented

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Dignity plc Annual Report & Accounts 2020 13

for all funeral and crematoria services Recommendation for new inspection and After this date, Dignity and others in providers to ensure a consistent level of registration scheme to improve the quality the industry will be required to share consumer standards across the market. of funeral directors’ back-of-house standards. information with the CMA. This reporting This covers collection and transport, care, and future engagement with Dignity and • Highlighting the capital investment made storage and preparation of the deceased. the wider sector, will enable the regulator by Dignity to continually deliver high This will potentially be funded through to ensure its remedies are being applied service standards, including provision of a levy or license fee imposed on funeral correctly, and to understand if the actions mortuary capacity, development of our directors. are effective in supporting the bereaved. employees, and investment in technology.

It will be important for Dignity to continue to It is clear from the financial data 2018 to work closely with the CMA and Government 2020 that both funeral mix and average on the implementation and structuring funeral revenues have been affected by of regulation, including any appointed structural changes in the market and the regulator, building on the platform already COVID-19 pandemic. We have worked with being developed by the Funeral Service the CMA to ensure that the increased level We are a long-term advocate Consumer Standards Review (‘FSCSR’). of competition and increased engagement Accordingly, we have strengthened of improving standards, quality, of consumers through online activity will not our Senior Leadership Team with the transparency and providing greater be restricted or limited by the proposed appointment of a Head of Governance choice in the funeral sector. future remedies. reporting directly to the Chairman.

CMA Market Investigation summary

Commercial remedies that build on and

improve recent industry progress to help As one of the UK’s major funeral related

Underlying average revenue (£) consumers fully engage with the economic service providers, Dignity has welcomed

aspects of choosing a funeral provider. and worked with the CMA at each stage

of the investigation process. We support 3,800 4,000 3,735 The key elements of this are: the conclusions, which focus on 3,578 3,337 measures to support consumer choice • A Price List that adheres to a specified and transparency. We also welcome the 3,000 CMA template. CMA’s recommendation to Government

• Provision of business information to clients. for quality and standards regulation in 2,000 the UK. • Prohibition of certain types of commercial 1,000 arrangements. During the next phase of the regulatory process, which includes a public 0 The statutory deadline for the implementation consultation on the outlined ‘commercial 2017 2018 2019 2020 of the remedies is 17 June 2021. We already remedies’, we look forward to further Full Service Revenue comply with many of the remedies and engagement with the CMA to ensure the expect to meet this deadline. best long-term outcome for our clients and the bereaved.

We firmly believe that for the proposed remedies to be truly effective for consumers, they must be applied across all funeral directors and crematoria. This is vital to ensure that all consumers of funeral services are equally protected.

Overall, we are confident that the Dignity has led the calls for greater remedies will help the sector meet the regulation of both at need and pre- evolving demands of its clients’ and arranged funeral sectors, while continue to improve consumer choice continuing to set the standard for and propositions in the market. what constitutes best practice in the industry.

2020 CMA Market Investigation timeline • Jun 2020 deadline for all parties’ responses to working papers published in February. • Jun 2020 deadline for final submissions before the Provisional 2018 2019 Decision Report. 2021 • CMA announced a market • In Apr 2019 CMAs issue • Aug 2020 Provisional Decision • 17 Jun 2021 Statutory study into the funeral statement published. Report published. deadline. industry. • Sept/Oct 2020 Provisional Decision Response (‘PDR’) hearings. • Nov 2018 CMA issued funeral market study interim • Dec 2020 CMA issue Final Decision report and consultation. Report (‘FDR’).

2018 2019 2020 COVID-19 2021 pandemic impact and response

• Dignity’s response • Dignity letter issued • Dignity issue final FDR • Statutory deadline. to interim report. in Jan 2019. statement in Dec 2020. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 17

14 Dignity plc Annual Report & Accounts 2020 Executive Chairman’s review continued Strategic report

1 2 3 4 5 6 A leading position in the direct cremation market We are committed to increasing Direct cremation is a significant, growing and evolving proposition choice for clients, and ensuring that in the funeral industry that impacts every area of our business; as a there is a wide range of options funeral director, as a crematorium operator, and as a pre-arranged available at different price points. We funeral provider. were the first funeral director to offer a national direct cremation service An alternative choice Unique in our service capabilities and have built on this by developing We know that consumer demand for We are uniquely positioned as a business our Simplicity Cremations brand alternative and lower priced funerals is rising. in being able to offer direct cremation at all which offers a range of lower cost There is a need to cater for those clients that levels through our national infrastructure; are seeking to save costs, but also those that either in the care we provide as a funeral and alternative funeral services. want more control over funeral arrangements. director, as a crematorium operator, or by facilitating the service through our Clive Whiley, Executive Chairman Awareness of direct cremation as an option dedicated direct cremation brand (Simplicity has grown to 52 per cent, with 42 per cent Cremations). We also offer consumers pre- who would consider using this service arranged plan options for this type of funeral (source: SunLife Cost of Dying report 2020). – a product that is growing in popularity. Yet in 2019 direct cremations only made up 2.4 per cent of all funerals in the UK. We deliver direct cremations through our network of 46 crematoria, which provide 2020 has seen direct cremation grow allocated slots that can be utilised by our significantly, in part due to COVID-19. own direct cremation business, but also Through both Simplicity Cremations and in by non-Dignity funeral directors and the CMG, we have seen direct cremation agreements with other providers. volumes almost double compared to 2019. It made up 16 per cent of CMG’s cremation Years of experience and operational volumes in 2020 alone. The impact of the efficiencies delivered through Dignity’s Simplicity Cremations: A leading Government’s restrictions placed on funerals funeral directors and facilities across the UK provider of direct cremation services has unsurprisingly forced people to think underpins the high-quality care provided in the UK differently about the type of service they through Simplicity Cremations, a capability would want for themselves or their family that the majority of direct cremation In December 2016 we launched our own members. We expect this societal shift providers simply do not have. direct cremation business, Simplicity to continue. Perspective Cremations, as a response to the | increased competition, changing Future growth consumer behaviour, and growing calls Amidst a greater focus on funeral costs Online continues to be our key route to for alternative and lower cost funerals. and a shift away from tradition, direct market and consumers have responded well cremation presents a compelling proposition to our innovative Simplicity Cremations TV It is one of the UK’s first predominantly for the bereaved. By removing the ceremony and radio advertising campaign. However, online cremation offers, at one of the or service, direct cremations are much it is important to keep exploring how we most competitive price points. less expensive, with prices starting from can reach all of those consumers that are Arrangements are made over the phone around £1,000. seeking an alternative solution for a funeral with a team of experts and there is no or cremation service. requirement to visit a physical branch. It is also very much an active choice for an increasingly secular, less traditional In addition to Simplicity direct cremations, Under the Simplicity Cremations brand, families have access to affordable segment of consumers. We have found we have begun trials offering direct direct cremation options and smaller, that many families choose an unattended cremation as a service through several of family-led services. direct cremation, whilst holding a more our funeral locations, and we are set to roll personalised attended service at an this out across more of Dignity’s network The services provide all the practical and alternative venue. Also, and particularly in the next year.

Direct Cremation Market Market Cremation Direct essential elements of a funeral without relevant under the restrictions during the the obligation to pay for a ceremony or pandemic, some people are choosing to By rethinking how a funeral service is both other features of a traditional service hold a celebration of life or memorial service marketed and delivered, the Company has they may not want. at a completely different time and date already made a significant step forward in to the cremation itself. giving clients greater choice and flexibility This is supported by the years of when it comes to arranging a funeral. Direct experience and uncompromised quality cremation is presenting signs of rapid growth of care delivered by Dignity funeral directors and national facilities. and we will continue to seek ways to expand our market-leading position in this space.

52% Awareness of direct cremation as an option has grown to 52 per cent.

106% Simplicity Cremations performed 4,300 direct cremation based services in 2020, an increase of 106 per cent over the prior period. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 18

Dignity plc Annual Report & Accounts 2020 15 Key performance indicators

Measuring our performance

The link between our strategy and our KPIs

Historical KPIs remain relevant

The Group has had a consistent set of financial and non-financial KPIs used to monitor the performance Delivering of the business against its Financial Excellent Strategic & strategy for many years. Operational These KPIs have continued Client to remain relevant during Service this period. Financial KPIs are measured by reference to underlying operating performance and are therefore unaffected by the accounting policy changes made in either period.

How we measure Financial KPIs performance

• We monitor our performance by measuring and tracking KPIs that we believe are Underlying earnings 46.6p Underlying cash generated important to our longer-term per share from operations £76.4m success. (pence) (£m) • The Group uses both financial and non-financial KPIs to 60.6p Definition £76.4m Definition manage the business and £71.8m ensure the Group's strategy This is underlying profit after This is the statutory cash tax divided by the weighted generated from operations and objectives are being average number of Ordinary excluding non-underlying delivered. Shares in issue in the period. items and the impact of 46.6p consolidating the Trusts, • Each KPI reflects a quantifiable Developments in 2020 IFRS 15 and IFRS 16. measure of different aspects The reduction follows the decrease in underlying Developments in 2020 of the Group’s strategy. They operating profit explained The Group continues to act as headlines for the Board, below. convert operating profit allowing them to use more into cash efficiently. detailed management information to consider the Group’s strategy and financial 2019 2020 2019 2020 performance in greater depth where appropriate. • Our KPIs and goals are set to measure our progress in improving our financial Underlying £55.7m Average revenue £2,522 performance and in operating profit per funeral embedding sustainable (£m) (£) long-term growth.

£63.3m Definition £2,930 Definition Our KPIs are aligned with This is the statutory operating £2,522 Underlying funeral revenue profit of the Group excluding divided by the number of our strategic objectives £55.7m non-underlying items and the funerals performed in the All KPIs are focused on impact of consolidating the relevant period. Trusts, IFRS 15 and IFRS 16. ensuring that the Group Developments in 2020 delivers on strategic objectives. Developments in 2020 Restrictions in client choices No particular KPI is solely Underlying operating due to COVID-19 have relevant to one aspect of the profit declined year-on-year, adversely impacted average Group’s strategy. despite higher deaths. This revenue as clients opted for is primarily due to lower simpler funerals. average revenue due to the pandemic.

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16 Dignity plc Annual Report & Accounts 2020 Key performance indicators continued Strategic report

Non-financial KPIs

Total estimated number Cremation of deaths in Britain 663,000 market share 11.2% (number) (per cent)

663,000 Definition 11.1% 11.2% Definition This is as reported by the This is the number of 584,000 Office for National Statistics. cremations performed by the Group divided by the Developments in 2020 total estimated number Deaths were materially of deaths in Britain. higher than originally anticipated due to the Developments in 2020 pandemic. Market share is broadly stable.

2019 2020 2019 2020

Funeral market share Number of cremations excluding Northern Ireland 12.0% performed 74,500 (per cent) (number)

11.7% 12.0% Definition 74,500 Definition This is the number of funerals 64,800 This is the number of performed by the Group in cremations performed Britain divided by the total according to our estimated number of deaths operational data. in Britain. Developments in 2020 Developments in 2020 Changes are a consequence Market share has improved of the total number of slightly. deaths and the Group’s market share.

2019 2020 2019 2020

Number of funerals 80,300 Active pre-arranged 558,000 performed funerals (number) (number)

80,300 Definition 558,000 Definition 523,000 69,400 This is the number of This is the number of pre- funerals performed by the arranged funerals (both trust Group according to our funeral plans and insurance operational data. backed) where the Group has an obligation to provide a Developments in 2020 funeral in the future. Changes are a consequence of the total number of Developments in 2020 deaths and the Group’s This increase reflects market share. continued sales activity (both trust funeral plans and insurance backed) offset by the crystallisation of plans sold in previous periods. 2019 2020 2019 2020 V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 20

Dignity plc Annual Report & Accounts 2020 17

Our aim is to be at the forefront of the sector in terms of quality, transparency, standards, choice and value-for-money.

Non-financial KPIs continued

Delivering excellent client service Maintaining high-quality and standards With a focus on delivering the highest levels of excellent We closely monitor the results of our client surveys which client service and standards of care, our client surveys are conducted by our Funeral services division. In the enable us to track and improve the provision of our last five years, we have received approximately 160,000 services. This includes feedback on how we share responses. This is our measure of how these services information with clients and how we guide families meet or exceed client expectations. Our consistently high through the arrangement process. satisfaction scores reflect the strength of our relationships with our clients. We listen to our clients and use our survey responses to focus on areas in which we can improve Client perception on quality and value-for-money and add value. Although many things are changing within the industry, it is still the case that recommendation and previous experience are key to maintaining our reputation as a The Dignity Client Survey 2020 quality and standards leader. We therefore must ensure our clients are consistently receiving the best levels of client care and value-for-money, irrespective of the type of service we have performed for them. Our survey data helps us understand this. Reputation and High standards of facilities recommendation and fleet Digital engagement 98.9% (2019: 99.2%) 99.7% (2019: 99.8%) As digital adoption trends evolve, we continue to invest in 98.9 per cent of respondents 99.7 per cent thought our technology and expertise to ensure we can make it easy said that we met or exceeded premises were clean and tidy. for people to find us online. We continue to develop our their expectations. digital communication channels which enhances customer engagement and offers an additional channel to hear from our clients. Our combined website traffic has grown from (2019: 98.0%) (2019: 99.7%) just over 1 million in 2017 to 5.13 million in 2020. 97.9% 99.2% 97.9 per cent of respondents 99.2 per cent thought our would recommend us. vehicles were clean and comfortable. Meeting and exceeding expectations (% of clients) 100% 66% Quality of service and care In the detail 64% 99% 62% (2019: 99.9%) (2019: 99.2%) 98% 99.9% 98.9% 60% 99.9 per cent thought our staff 98.9 per cent of clients agreed 97% were respectful. that our staff had fully explained 58% what would happen before 96% and during the funeral. 56% (12 month rolling average) (2019: 99.7%) 95% 54% 99.6% 1 9 8 7 6 5 4 2 3 0 1 1 1 1 1 1 1 1 1 20 09 08 07 06 1 c c c c c c c c c c c c c c c 99.6 per cent thought our 99.2% (2019: 99.0%) De De De De De De De De De De De De De De De staff listened to their needs Met and exceeded Exceeded expectations and wishes. 99.2 per cent said that the expectations (left hand axis) (right hand axis) funeral service took place on time. (2019: 99.1%) Recommending our services (% of clients) 99.1% 99.1 per cent agreed that 100% 98.0% (2019: 98.3%) our staff were compassionate and caring. 98.0 per cent said that the 99% final invoice matched the estimate provided. 98%

97%

96%

(12 month rolling average) 95% 1 8 9 7 5 6 3 4 2 0 1 1 1 1 1 1 1 1 1 20 09 08 07 06 1 c c c c c c c c c c c c c c c De De De De De De De De De De De De De De De Percentage of clients willing to recommend Dignity’s services V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 21

18 Dignity plc Annual Report & Accounts 2020 Operating review Strategic report

Funeral services relate to the provision of funerals and ancillary items, such as memorials and floral tributes.

During the year we had to significantly change our working practices to ensure the safety of our colleagues and clients while at the same time delivering the appropriate service levels during the pandemic.

Andrew Judd Executive Director of Funeral Operations

Funeral 795 80,300 services Number of funeral Number of funerals locations we operate conducted during 2020. in the UK.

Performance in 2020 Group operating profit share Group underlying operating profit (before central overheads) share (before central overheads) 28% (2019: 60%) 54% (2019: 59%)

Underlying revenue(1) Operating profit Underlying operating profit £202.6m £17.5m £50.0m (2019: £203.3m) (2019: £54.7m) (2019: £56.3m)

Funeral mix and underlying average revenue (FY 2020 Actual)

Average underlying revenue(1) (£) Volume mix (%) Underlying weighted average revenue(1) (£)

£2,397

Full service 3,337 (2019: 3,578) Full service 39 (2019: 52) Underlying weighted average revenue 2,397 (2019: 2,699) Simple and Limited Service 1,941 (2019: 2,047) Simple and Limited Service 25 (2019: 14) Average ancillary revenue 125 (2019: 231) Pre-need 1,911 (2019: 1,846) Pre-need 28 (2019: 27) Other (including Simplicity) 940 (2019: 770) Other (including Simplicity) 8 (2019: 7)

(1) Total underlying revenue was £202.6 million (2019: £203.3 million). On a statutory basis the Group recognised Funeral services revenue of £274.8 million (2019: £262.1 million). See note 3 for further details.

Financial summary 2020 H1 H2 FY £m £m £m Underlying operating profit – 2019 30.5 25.8 56.3 Impact of: Number of deaths 20.3 3.3 23.6 Market share 4.4 0.1 4.5 Average revenues (19.0) (11.3) (30.3) Net cost base changes (2.5) (1.6) (4.1) Underlying operating profit – 2020 33.7 16.3 50.0

Items totalling £32.5 million (2019: credit £1.6 million) excluded from underlying operating profit resulted in statutory operating profit of £17.5 million (2019: £54.7 million). These items are discussed in the Financial review but relate to non-underlying items and the impact of consolidating the Trusts, applying IFRS 15 and adopting IFRS 16. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 22

Dignity plc Annual Report & Accounts 2020 19

Overview Funeral mix and average revenue Q1 Q2 H1 Q3 Q4 H2 FY As at 25 December 2020, we operated 2020 2020 2020 2020 2020 2020 2020 Funeral type Actual Actual Actual Actual Actual Actual Actual from a network of 795 (2019: 820) funeral locations. This network covers the UK and Underlying average Full service 3,521 3,080 3,341 3,308 3,351 3,332 3,337 revenue (£) Simple and Limited service 1,972 1,953 1,956 1,897 1,937 1,917 1,941 trades under locally established names. Pre-need 1,894 1,869 1,880 1,921 1,979 1,953 1,911 Other (including Simplicity) 888 992 987 811 927 937 940 Performance Volume mix (%) Full service 50 26 37 40 43 42 39 We conducted 80,300 funerals (2019: Simple and Limited service 14 37 26 25 21 22 25 69,400) during the period under review, Pre-need 29 28 28 27 28 28 28 more than at any stage in our history Other (including Simplicity) 7 9 9 8 8 8 8 despite operational constraints resulting Underlying weighted average (£) 2,648 2,136 2,360 2,381 2,476 2,443 2,397 from COVID-19. Ancillary revenue (£) 175 49 101 174 169 161 125 Underlying average revenue (£) 2,823 2,185 2,461 2,555 2,645 2,604 2,522 Underlying operating profit was £50.0 Full service volume as a percentage million (2019: £56.3 million), down by 13 of full, simple and limited (%) 78 41 59 62 67 66 61 per cent due to the impacts of COVID-19, this can be explained by the financial summary table on page 18. Funeral mix and average revenue FY Q1 Q2 H1 Q3 Q4 H2 FY 2018 2019 2019 2019 2019 2019 2019 2019 Funeral type Actual Actual Actual Actual Actual Actual Actual Actual Progress and Developments Underlying average Full service 3,735 3,542 3,585 3,558 3,608 3,613 3,605 3,578 Market share revenue (£) Simple and Limited service 2,350 2,159 2,000 2,089 2,000 1,995 1,996 2,047 Approximately one per cent of all funerals Pre-need 1,705 1,826 1,789 1,806 1,879 1,899 1,890 1,846 were conducted in Northern Ireland. Other (including Simplicity) 570 773 734 756 772 780 774 770 Excluding Northern Ireland, these Volume mix (%) Full service 48 52 53 52 52 52 52 52 funerals represented approximately Simple and Limited service 19 14 13 14 14 13 13 14 Pre-need 27 27 28 28 27 28 28 27 12.0 per cent (2019: 11.7 per cent) of Other (including Simplicity) 6 7 6 6 7 7 7 7 total estimated deaths in Britain. Whilst Underlying weighted average (£) 2,734 2,691 2,705 2,694 2,717 2,724 2,717 2,699 funerals divided by estimated deaths is a Ancillary revenue (£) 239 213 233 225 227 214 224 231 reasonable measure of our market share, Underlying average revenue (£) 2,973 2,904 2,938 2,919 2,944 2,938 2,941 2,930 the Group does not have a complete national presence and consequently, this Full service volume as a percentage calculation can only ever be an estimate. of full, simple and limited (%) 72 79 80 79 79 80 80 79

Year-on-year growth in market share Following the installation of perspex There was one branch opening and is primarily attributable to growth in dividing screens and the re-opening of 26 closures in the year. These closures Simplicity 0.3 per cent and pre-arranged places of worship (albeit restricted on represent funeral locations where leases funeral plans 0.1 per cent. Market share number of mourners), the Group’s have naturally come to an end and have of full, simple and limited funerals was average revenue started to improve not been renewed and also include nine slightly below the prior year. during Q3. Q4 witnessed a full service freehold closures. average that was higher than Q2 and Q3 On a comparable basis, excluding any at £3,351 with 43 per cent of all funerals funerals from locations not contributing being full service and the ratio of full to the whole of 2019 and 2020, market service to full, simple and limited Strategic Focus and Outlook increasing to 68 per cent. This resulted in share was 11.9 per cent, compared to The Group is focusing on its root and the underlying average revenue for Q4 11.6 per cent in 2019. This builds on branch review which will be completed being £2,645 compared to £2,555 in the the improvement made in 2019 where in the second quarter of 2021. We comparable market share grew by 0.2 per third quarter of 2020. Client choices and continue to develop and trial different cent, both 2020 and 2019 are a significant therefore average revenue are still likely service offerings and propositions and improvement on the dramatic market to vary more by region in the coming will continue to work with the regulator share declines witnessed in 2016 and months depending on national and then 2018, however, further trials are necessary potential local restrictions in place. and Government to ensure the to complete the Group’s understanding package of remedies recommended of the changing relationship between Investment by the CMA work for customers. price and market share. Investment in the Group’s locations and fleet have continued. In 2020, £4.9 million Funeral mix and Average revenue was invested in maintenance capital As demonstrated in the table, the year- expenditure. Expenditure was lower in on-year decline in the underlying average 2019 and 2020 than in previous years as revenue is primarily due to the COVID-19 the Group is focusing on priorities around pandemic. Q2 was particularly impacted the root and branch review following the due to the Group temporarily withdrawing suspension of the Transformation Plan in the provision of limousines in the interests 2020. The Group anticipates higher spend of the welfare of its staff and clients. Other in 2021. choices such as church services also stopped being possible during this time. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 23

20 Dignity plc Annual Report & Accounts 2020 Operating review continued Strategic report

Crematoria services relate to cremation services and the sale of memorials and burial plots at the Group’s crematoria and cemeteries.

in July, having been closed for three months and were inundated with clients who understandably needed closure through creating final resting places for The Crematorium and Memorial Group (‘CMG’) their loved one’s ashes, as well as the is the largest single independent operator of arrangement of memorials. Nonetheless, crematoria in Britain with a significant portfolio memorial sales and other items were six of well-established and state-of-the-art crematoria per cent lower than the previous period. that meet the needs of the local communities we serve. Our extensive, peaceful grounds allow Non-underlying costs of £0.2 million clients to remember their loved ones in a very (2019: £1.2 million) and IFRS 16 credit of personal way. £2.6 million (2019: nil) are excluded from underlying operating profit resulting in Steve Gant statutory operating profit of £45.2 million Crematoria Director (2019: £37.2 million).

Progress and Developments The Group has invested £2.7 million maintaining and improving its locations in the period. Crematoria 46 74,500 Number crematoria we Number of cremations The Group now has planning permission operate in England and conducted during 2020. for four new crematoria. The total capital Scotland. commitment for these four projects is expected to be approximately £30 million, with £6.7 million of this amount having Performance in 2020 Group operating profit share Group underlying operating profit already been invested. Each of the (before central overheads) share (before central overheads) locations with planning permission will 72% (2019: 40%) 46% (2019: 41%) take five to seven years to reach maturity, performing 800 to 1,000 cremations Underlying revenue(1) Operating profit Underlying operating profit per year. £82.7m £45.2m £42.8m (2019: £76.8m) (2019: £37.2m) (2019: £38.4m) The Group also has two locations where (1)There is no difference between underlying revenue and statutory revenue for the Crematoria division. it is appealing the planning decisions and another two that are currently in the planning process. Overview Financial summary 2020 H1 H2 FY The Group remains the largest single £m £m £m independent operator of crematoria in Underlying operating Britain, operating 46 (2019: 46) crematoria profit – 2019 20.8 17.6 38.4 Strategic Focus and Outlook as at 25 December 2020. Impact of: Number of deaths 7.4 0.4 7.8 Crematoria remains a stable and The greatest challenge of 2020 was Market share 0.9 0.1 1.0 cash generative aspect of the Group’s operations. However, we have undoubtedly ensuring safety and Average revenues (4.3) 1.4 (2.9) continuity of service through an ever embarked on a total restructure of changing landscape forced upon us by the Cost base changes (1.1) (0.4) (1.5) CMG which is still in progress. We have aggressive growth of COVID-19, leading to Underlying operating introduced smaller cluster areas to excess deaths and the unmitigated rate at profit – 2020 23.7 19.1 42.8 encompass a more collaborative team which the Government had to review and ethic and an increase in the training change the guidelines for businesses. Sales of memorials and other items have and staff development across all For CMG this meant creating a safe been adversely impacted primarily by disciplines. The overall achievement environment for visitors and staff. COVID-19 and an increasing trend in not will be to create a more dedicated and collecting ashes resulting in total memorial focused CMG team which will facilitate Performance revenue being £16.7 million (2019: £17.8 further cost savings through a more million) six per cent lower than the prior The Group performed 74,500 cremations streamlined and efficient organisation. (2019: 64,800) in the period, representing year despite cremation volumes being 11.2 per cent (2019: 11.1 per cent) of total 15 per cent higher. In addition to reduced estimated deaths in Britain. memorial sales, the average cremation revenue has reduced by three per cent to Underlying operating profit was £42.8 £885 (2019: £911) due to the increase in million (2019: £38.4 million), an increase direct cremation related services. of 11 per cent. This increase in profitability is driven by the number of deaths partially All offices were officially closed in line offset by lower average revenues from with Government guidance. We promptly the increased use of direct cremation made offices safe for staff and visitors and lower memorial revenue, as with the use of personal screens and explained below: limiting to an appointment-only basis for visitors. Our memorial offices reopened

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Dignity plc Annual Report & Accounts 2020 21

Pre-arranged funeral plans represent the sale of funerals to clients wishing to make their own funeral arrangements in advance.

based on prudent assumptions by the Trust’s actuary. This valuation is based on the amounts the Trusts are expected to pay when a funeral is performed rather

We are one of the UK’s largest than the actual cost of performance providers of pre-arranged funerals (being a lower amount) to the Group. and we continue to strengthen our business in this competitive The pre-arrangement Trustees are actively market. This is a real testament, reviewing the investment strategy of the we believe, to our reputation for Trusts, focused on providing the Trading high levels of service, quality and Group with greater certainty over amounts to be paid when funerals are performed trustworthiness. in a rolling five year period. The retention Paul Toghill of cash or high-grade bonds to cover these Director of Pre Arrangement liabilities, together with implementing an overall investment strategy with lower

aggregate fund management and execution costs will provide more certainty.

These changes to the investment strategy are imminent and will materially reduce the overall costs of managing the Trusts’ Pre-arranged 558,000 investments, enhancing the capacity for

funeral plans Number of active plans future revenue growth. as at 25 December 2020. The Trusts have assets, including cash, under the management of the Trustees of

Of the sales in the period 30,000 plans £988.7 million (2019: £963.0 million) with Performance in 2020 investments split as follows: were trust based funeral plans (2019: 26,000). In addition, 30,000 (2019: 32,000) Underlying Underlying Example Target revenue(1) operating profit plans were linked to life assurance plans investment types (%) with third parties. Not all of these £28.8m Defensive Index linked gilts 18 £nil insurance backed plans include an investments and corporate (2019: £21.2m) (2019: £nil) obligation to provide a guaranteed funeral bonds (1)Pre-arranged funeral plans are not a separate division in and we anticipate the cancellation Illiquid investments Private investments 16 statutory terms, as a result statutory revenue is £nil (2019: experience to be significantly higher than £nil). Please see note 3 for further details. Core growth Equities 38 is witnessed on trust based sales. investments Underlying Performance Historically, as with all the Group’s Growth fixed income Emerging market 22 The Group continues to have a strong and alternative debt/diversified divisions, pre-arranged funeral plans investments growth market presence in pre-arranged funeral underlying profits broadly reflect the plans and insurance policies charged to it Liquid investments Open-ended 6 cash generated by that activity. This investment funds for the provision of a funeral. The plans position has started to shift as more long- represent potential future incremental term instalment plans are written, where business for the funeral division, providing The current allocation is subject to annual marketing costs are incurred when a review by the Trustees with support from high-levels of certainty of cash flows as plan is sold, but, marketing recoveries existing plans mature. their investment advisers. See Financial are claimed from the trust in line with review for additional discussion of Trust The Trading Group claims a marketing instalment payments. This shift has balances. allowance from the trust that covers the changed the profile of the early years costs incurred in the selling of Funeral cashflow position. Plans. As a result, the pre-arrangement Progress and Developments Strategic Focus and Outlook division does not contribute any profit Dignity remains focused on selling high- at the time of sale therefore underlying quality business, in ways that support The Group remains optimistic on its operating profit was £nil in both periods. the strong reputation of the Group. ability to continue to be a market leader in pre-arranged funerals. Approximately 60,000 (2019: 58,000) new The financial position of the Trusts plan sales were made and the number holding members’ monies is crucial, given The Group welcomes FCA regulation of active pre-arranged plans (including the Group ultimately guarantees the of the sector and is planning for insurance backed arrangements) increased promises made to members. At the end regulation to be effective by the middle to 558,000 (2019: 523,000). All plan sales of 2020, the Trusts had average assets per of 2022. The Group will continue are stated net of cancellations. Over the plan of £3,400 (2019: £3,300) in respect last 12 months the cancellation rate has to engage with relevant parties as of 319,000 trust based funeral plans. appropriate whilst maintaining focus increased which primarily relates to the Average assets per plan are greater than increase in the mix of long-term instalment on selling high-quality, competitive the amount currently received by the products to clients. plan sales which have a higher cancellation Trading Group for performing a funeral. rate. The majority of commissions are The Group intends to continue to clawed back from distribution partners The latest actuarial valuations of the sell as many plans as is commercially on cancellation in the first two years (the Trusts (at 25 September 2020) showed possible and economically sensible. majority of expected cancellations take them to have a surplus of £4 million place in this period). (27 September 2019: surplus £17 million), V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 25

22 Dignity plc Annual Report & Accounts 2020 Financial review Strategic report

We consider these underlying results to be robust, despite the pandemic Dean Moore, Interim Chief Financial Officer Three quarters of our financial year has been impacted by the COVID-19 pandemic. Despite this we consider these underlying results to be robust having increased our operating cash generation year-on-year, and remained profitable, albeit at a reduced level. With the exception of business rate relief, we have chosen not to take advantage of the various Government schemes brought in to support business during the pandemic.

These results have been prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

Our performance in 2020 was impacted by COVID-19. Statutory operating profit was £15.9 million (2019: £44.8 million), a decrease of £28.9 million. Gross margin increased £3.0 million As a result, underlying operating profit decreased by 12 with a strong performance in the crematoria division and a higher per cent to £55.7 million and underlying average revenue contribution from delivery of an increased number of pre-need per funeral reduced from £2,930 to £2,522, reflecting the funerals, whereas the additional at-need funerals delivered impact of a switch to more simple funerals, partly due to were more than offset by reductions in average revenues. our restricted ability to provide full service requirements, Administrative expenses were £31.9 million higher, largely driven during the COVID-19 pandemic. by an increased impairment charge of £37.2 million on goodwill and trade names compared to last year and after incurring Our market share increased on funeral services and additional central overheads of £5.7 million in part to help manage there was a strong market share performance by our the business through the pandemic. This was partially offset by crematoria business. Our Transformation Plan was a reduction in other non-underlying items, primarily in respect paused indefinitely during the year in order to focus on of £7.4 million less spent on the Transformation Plan which has been abrogated. See table on page 23 for further details on the the impacts of the pandemic. This will not be resumed. impacts to statutory and underlying operating profit. Cash generation remained strong in the year and will The total impairment of £44.0 million has been charged in the enable us to continue to invest in our strategic objectives period (2019: £6.8 million), of which £15.3 million (2019: £6.8 in the future. million) relates to trade names and £28.7 million (2019: nil) to goodwill. The impairment has arisen primarily due to the reduced average revenues and mix that has impacted the funeral services division over the last 12 months. Revenue Underlying revenue The Group’s net finance costs of £35.5 million (2019: income £357.5m £314.1m £5.3 million), a £40.8 million movement primarily due to the (2019: £338.9m) (2019: £301.3m) lower increase in fair value movements of the financial assets held by the Trusts of £38.2 million. In 2019, the Group had a further £6.0 million of non-underlying items relating to the Operating profit Underlying operating profit impairment of its investment in an associated undertaking. The above has resulted in losses before tax for the Group £15.9m £55.7m of £19.6 million (2019 profit: £44.1 million). (2019: £44.8m) (2019: £63.3m) The Board believes that whilst statutory reporting measures provide financial performance of the Group under GAAP, alternative performance measures as used in the day-to-day Cash generated from operations Underlying cash generated from management of the business are necessary to enable users operations of the financial statements to fully understand the trading £62.7m performance and financial position of the business and allow (2019: £64.6m) £76.4m (2019: £71.8m) for greater comparability across periods. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 26

Dignity plc Annual Report & Accounts 2020 23

Financial highlights Earnings per share The Group’s financial performance is summarised below: Statutory loss after tax was £25.5 million (2019 restated: £30.6 million). Basic loss per share were (51.0) pence per share 52 week 52 week (2019 restated earnings: 61.2 pence per share). Underlying profit period ended period ended after tax was £23.3 million (2019: £30.3 million), giving underlying 25 Dec 2020 27 Dec 2019 Increase/ restated(b) (decrease) earnings per share of 46.6 pence per share (2019: 60.6 pence per £m £m % share), a reduction of 23 per cent. Underlying revenue(a) (£million) 314.1 301.3 4 Underlying operating profit(a) (£million) 55.7 63.3 (12) Items excluded from underlying operating profit Underlying profit before tax(a) (£million) 30.7 37.7 (19) Underlying earnings per share(a) (pence) 46.6 60.6 (23) Amortisation of acquisition related intangibles Amortisation of acquisition related intangibles reflects the Underlying cash generated from operations(a) (£million) 76.4 71.8 6 write-off of acquired intangibles over the term of their useful life.

Revenue (£million) 357.5 338.9 5 External transaction costs Operating profit (£million) 15.9 44.8 (65) External transaction costs primarily reflect amounts paid to (Loss)/profit before tax (£million) (19.6) 44.1 external parties for legal, tax and other advice in respect of the Basic (loss)/earnings per share (pence) (51.0) 61.2 Group’s acquisitions and unsuccessful crematoria planning Cash generated from operations (£million) 62.7 64.6 (3) developments. Dividends paid in the period: Final dividend (pence) – 15.74 Profit on sale of fixed assets (a) Further details of alternative performance measures can be found on pages 156 to 161. Profits or losses arising from the sale of fixed assets (net of (b) See prior year adjustment note on page 96. any insurance proceeds received) are excluded as they are unconnected with the trading performance in the period. Alternative performance measures The alternative performance measures are stated before non- Transformation Plan costs underlying items and the effect of consolidation of the Trusts, Cost incurred in relation to the Group’s now abrogated applying IFRS 15 and adopting IFRS 16 as defined on page 156. Transformation Plan has resulted in significant, directly These items have been adjusted for in determining underlying attributable non-recurring costs. measures of profitability as these underlying measures are those used in the day-to-day management of the business and allow Directors severance pay for greater comparability across periods. Following the departure of Mike McCollum, Steve Whittern and Richard Portman in 2020, severance packages have been agreed Detailed information on non-underlying items including a and paid and are considered to be a non-recurring cost. reconciliation of statutory revenue to underlying revenue is set out on pages 108 and 156 to 160. Operating and competition review costs The Group has incurred costs with external advisers to support Accordingly, the following information is presented to aid the Group’s response to the CMA’s funerals market investigation understanding of the performance of the Group: and HM Treasury‘s consultation on the funeral plan sector. Costs were also incurred in 2020 with external advisers to support its 52 week 52 week period ended period ended operational review. 25 Dec 2020 27 Dec 2019 £m £m Trade name impairment Operating profit for the period as reported 15.9 44.8 The Group assessed the carrying value of its trade names. Add the effects of: In light of the lower level of profitability and lower anticipated Acquisition related amortisation 4.6 4.8 average revenue per funeral, an impairment of £15.3 million External transaction costs in respect of (2019: £6.8 million) has been recognised. completed and aborted transactions 0.8 0.9 Profit on sale of fixed assets (0.2) (1.0) Goodwill impairment Transformation Plan costs(a) 4.7 12.1 The Group assessed the carrying value of its goodwill. In light Directors severance pay 1.6 – Operating and competition review costs 2.9 3.5 of the lower level of profitability and lower anticipated average Trade name impairment 15.3 6.8 revenue per funeral, an impairment of £28.7 million (2019: £nil Goodwill impairment 28.7 – million) has been recognised. Impact of Trust consolidation and IFRS 15 (14.0) (8.6) Impact of IFRS 16 (4.6) – Trust consolidation/IFRS 15 In the prior period the Group changed its accounting policy Underlying operating profit (b) 55.7 63.3 Underlying net finance costs (25.0) (25.6) to consolidate the Trusts and to implement IFRS 15. This adjustment reverses the impact of these policy changes in order Underlying profit before tax (b) 30.7 37.7 Tax charge on underlying profit before tax (7.4) (7.4) to maintain underlying performance measures with those used in the day-to-day management of the business. Underlying profit after tax(b) 23.3 30.3 Weighted average number of Ordinary Shares in issue during the period (million) 50.0 50.0 (b) Underlying EPS (pence) 46.6 60.6 Decrease in underlying EPS (per cent) 23 29 (a) The £4.7 million costs incurred in 2020 reflects expenditure up to the point of the Transformation Plan being abrogated. (b) Further details of alternative performance measures can be found on pages 156 to 161. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 27

24 Dignity plc Annual Report & Accounts 2020

Financial review continued Strategic report

IFRS 16 In 2021, the Group expects its underlying effective tax rate to be As detailed elsewhere in this report, the Group has adopted IFRS approximately two to three per cent above the headline rate of 16 in the period. This adjustment reverses the impact of these corporation tax. This translates to an underlying effective rate policy changes in order to maintain underlying performance of between 21.0 per cent and 22.0 per cent. measures with those used in the day-to-day management of the business. The impact of IFRS 16 has been reversed in arriving at The Group’s effective tax rate on losses is 30.0 per cent (2019: the APM for 2020 only. This is due to the modified retrospective 30.6 per cent) which is higher than the underlying effective tax adoption of the standard, meaning the 2019 comparatives have rate primarily due to the £4.3 million corporate interest restriction not been restated and therefore are not comparable. disallowance and £3.5 million arising on the goodwill and trade name impairments partially offset by the £1.1 million rate Capital expenditure change credit. Capital expenditure on property, plant and equipment and intangible assets was £11.1 million (2019: £18.3 million). Prior year restatement A prior year restatement has been made to the magnitude of

25 Dec 27 Dec £4.3 million to correct the 2019 taxation charge and corresponding 2020 2019 corporation tax liability. This follows the finalisation of the Group’s This is analysed as: £m £m detailed corporate interest restriction return and an increase to Maintenance capital expenditure: the Group’s interest disallowance as a result of the inclusion of Funeral services 5.0 5.4 the fair value movements on the Trusts debt investments. Further Crematoria 2.7 3.3 details of the prior year restatement are set out in note 1 to the Other 1.4 1.1 financial statements. Total maintenance capital expenditure (a) 9.1 9.8 Branch relocations 0.5 1.1 Capital structure and financing for the Trading Group Transformation capital expenditure 0.2 1.7 Satellite locations – 0.3 Secured Notes Development of new crematoria and cemeteries 1.3 5.4 The Group’s principal source of long-term debt financing is the Total property, plant and equipment 11.1 18.3 Secured A Notes and the Secured B Notes. The principal is repaid Partly funded by: completely over the life of the Secured Notes and is therefore Disposal proceeds – vehicles – (0.2) scheduled to be repaid by 2049. The interest rate is fixed for the Disposal proceeds – properties(b) (1.1) (1.9) life of the Secured Notes and interest is calculated on the principal. Net capital expenditure 10.0 16.2 The key terms of the Secured Notes are summarised in the (a) Maintenance capital expenditure includes vehicle replacement programme, improvements to locations and purchases of other tangible and intangible assets. table below: (b) Property disposals are the result of the Transformation Plan.

The Group will continue to invest in the maintenance of its Secured A Notes Secured B Notes existing portfolio of vehicles and funeral and crematoria locations. Total new issuance at par £238.9 million £356.4 million

Cash flow and cash balances for the Trading Group Legal maturity 25 December 2034 25 December 2049 Underlying cash generated from operations was £76.4 million Coupon 3.5456% 4.6956% (2019: £71.8 million). Rating by Fitch A- BB+ Rating by Standard & Poor’s A- B+ Other working capital changes were consistent with the Group’s experience of converting profits into cash, subject to timing The Secured Notes have an annual debt service obligation differences and cash incurred in respect of commission payments. (principal and interest) of circa £33.2 million. Cash balances of the Trading Group at the end of the period were £73.6 million (2019: £57.9 million). Further details and analysis of It is not currently possible to issue further Secured Notes, as such the Group’s cash balances are included in note 17 to the an issue would require the rating of the Secured B Notes to raise consolidated financial statements. to BBB by both rating agencies.

Pensions Financial Covenant The balance sheet shows a deficit of £36.6 million before deferred The Group’s primary financial covenant under the Secured tax (2019: deficit of £26.0 million). The scheme currently Notes requires EBITDA to total debt service to be above 1.5 times. represents an annual cash obligation of £2.2 million. The triennial The ratio at 25 December 2020 was 1.99 times (2019: 2.13 times). valuation was performed in April 2020, the outcome of which is The Group therefore had EBITDA headroom of approximately awaiting and will determine future annual cash obligations for the £16 million against its financial covenants at the end of December. Group from 2021 onwards. This covenant calculation uses a prescribed definition of EBITDA detailed in the loan documentation and only represents the profit Taxation of a sub-group of the Group which is party to the loans (the The Group’s effective tax rate on underlying profits in the period ‘Securitisation Group’). Furthermore, the calculations are was 24.1 per cent (2019: 19.5 per cent). The current period unaffected by the consolidation of the Trusts or the application underlying effective tax rate is higher than originally anticipated of IFRS 15 and IFRS 16 described elsewhere, as the Group was able due to the effects of prior year items with a tax impact totalling to elect to disregard those changes when making the calculations. £0.6 million. During the period, certain trade and assets previously held outside of the Securitisation Group were sold to the Securitisation Group increasing future EBITDA.

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Dignity plc Annual Report & Accounts 2020 25

EBITDA for this calculation can be reconciled to the Group’s Net finance costs statutory operating profit as follows: The Group’s underlying finance costs substantially consist of the interest on the Secured Notes and ancillary instruments. The net finance cost in the period relating to these instruments 25 Dec 2020 was £24.1 million (2019: £24.4 million). £m EBITDA per covenant calculation – Securitisation Group 67.6 Other ongoing underlying finance costs incurred in the period Add: EBITDA of entities outside Securitisation Group 9.8 amounted to £1.0 million (2019: £1.4 million), covering the Less: Non-cash items(a) (1.9) unwinding of discounts on the Group’s provisions and other financial liabilities. Underlying operating profit before depreciation and amortisation – Group 75.5 Underlying depreciation and amortisation (19.8) Interest receivable on bank deposits was £0.1 million (2019: Non-underlying items (58.4) £0.2 million). Impact of Trust consolidation and IFRS 15 14.0 Impact of IFRS 16 4.6 The Group also incurred £4.7 million (2019: £nil) lease liability interest, under IFRS 16, giving a total statutory net finance cost Operating profit 15.9 of £29.7 million (2019: £25.6 million). (a) The terms of the securitisation require certain items (such as pensions) to be adjusted from an accounting basis to a cash basis. Shareholders’ deficit Consolidating the Trusts and applying IFRS 15, has a significant In addition, in order for the Group to transfer excess cash from the impact on our reported results. The recognition of contract Securitisation Group to Dignity plc, it must achieve both a higher liabilities (the majority of which are expected to fall due after one EBITDA to total debt service ratio of 1.85 times and achieve a Free year) in excess of the Trusts’ financial assets has caused the Group’s Cash Flow to total debt service (a defined term in the securitisation balance sheet to show an overall deficit in shareholders’ funds. documentation) of at least 1.4 times. This latter ratio at December was 1.57 times (December 2019: 1.65 times). These combined On consolidation of the Trusts, all funds received from the plan requirements are known as the Restricted Payment Condition members are deferred until recognised on satisfaction of a funeral (‘RPC’) which have been met in 2020. Failure to pass the RPC would obligation or when a plan is cancelled and refunded (subject to an not be a covenant breach and would not cause an acceleration of administrative fee). These deferred funds increase under IFRS 15 any debt repayments. Any cash not permitted to be transferred by a material non-cash significant financing charge (see note 1 for whilst the RPC is not achieved will be available to be transferred accounting policy). The assets of the Trusts, initially representing at a later date once the RPC requirement is achieved. the same funds received from plan members less an amount paid to the Trading Group to cover marketing costs, are invested by On 31 July 2020, Standard & Poor’s lowered their rating of the the Trusts and are subject to market movements. Over time, Group’s Class B Secured Notes from BB- to B+. This change investments are also realised to fund funeral payments or refund of rating has no impact on the day-to-day operations of the obligations. The net impact of the above gives rise to a significant Secured Notes. reduction in the net asset value of the Group to a position where the Group has reported a net deficit of £174.0 million (2019: Revolving Credit Facility £141.5 million). Whilst this position appropriately reflects the The Group has the benefit of a £10 million Revolving Credit Facility application of IFRS 15 to the underlying contract with the plan (‘RCF’), provided by the Royal Bank of Scotland, which is secured member, based on the current cost of delivery of a funeral service, against certain trade and assets held by legal entities outside of delivery of pre-need funerals is expected to result in the future the Group’s securitisation structure. The RCF can be drawn down recognition of profits under IFRS, which, over time, the Directors subject to a set of financial tests applied to these legal entities. consider would more than eliminate the deficit noted above.

The facility is available until July 2021, with the option to renew, This deficit, which only arises on consolidation, has no impact on subject to the bank’s consent at the time, by a further year. the Group’s future ability to pay dividends to shareholders, which The margin on the facility ranges from 150 to 225 basis points relies on the reserves in the Company and not the Group. depending on the resulting gross leverage. The Trusts This provides the Group ongoing flexibility in a cost effective At the balance sheet date, the Trusts had £967.1 million (2019: manner as, if undrawn, the facility represents an annual cost £947.5 million) of financial assets and £21.6 million (2019: £15.5 of approximately £0.1 million. Given the Group’s healthy cash million) of cash, which was recognised in the consolidated balance balances, the RCF is undrawn at the time of the release of this sheet. This has resulted in average net Trust assets per plan announcement and was not drawn at any point in the year. increasing three per cent to £3,400 (2019: £3,300). The movement in financial assets is primarily attributable to remeasurement Net debt gains recognised in the consolidated income statement of £41.3 The Trading Group has underlying net debt of £480.6 million million (2019: £79.5 million), reflecting changes in asset values (2019: £506.2 million) at the balance sheet date. See note 26 for and net disposals of financial assets of £18.7 million (2019 net further details. purchases: £9.5 million).

Whilst the Group has no plans to do so, should it wish to repay Aggregated contract liabilities totalled £1,317.5 million (2019: all amounts due under the Secured Notes, the cost to do so at the year end would have been approximately £822.7 million, £1,304.6 million) with the primary movements being sales of (Class A Notes: £226.0 million; Class B Notes: £596.7 million) new plans of £82.0 million (2019: £91.2 million), increases due (2019: £791.9 million, (Class A Notes: £231.4 million; Class B to significant financing of £53.1 million (2019: £54.1 million) and Notes: £560.5 million)). releases due to death or cancellation totalling £122.2 million (2019: £96.8 million). V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 29

26 Dignity plc Annual Report & Accounts 2020 Financial review continued Strategic report

The impact of IFRS 16 – Leases Central overheads In 2020, the Group has adopted the new accounting standard IFRS 16, Leases. This standard requires the Group to recognise Overview an asset and liability on its balance sheet for operating leases that Central overheads relate to central services that are not were previously held off balance sheet. As approximately half specifically attributed to a particular operating division. These of the Group’s funeral properties and some of its crematoria are include the provision of IT, finance, personnel and Directors’ leased, this has had a material impact to the Group’s statutory emoluments. In addition, and consistent with previous periods, results. The Group has recognised an initial asset of £101.7 million the Group records centrally the costs of incentive bonus and an initial liability of £93.6 million. Under the transition approach arrangements, such as Long-Term Incentive Plans (‘LTIPs’) and being followed comparative results for the prior period are annual performance bonuses, which are provided to over not restated. 100 managers working across the business.

At the period end the Group held a right-of-use asset of £95.2 Developments million and a corresponding lease liability of £88.5 million. Underlying costs in the period were £37.1 million (2019: Furthermore, in the period, operating lease costs of £12.1 million £31.4 million). As anticipated, this reflects continued investment were replaced by a depreciation charge of £9.2 million, finance in digital activities and central capabilities. The table below cost of £4.7 million and a release of accruals and prepayments summarises the key movements: of £1.7 million.

H1 H2 FY As with the Trust consolidation and the impact of IFRS 15, the £m £m £m adoption of IFRS 16 does not impact the Group’s securitisation Central overheads – 2019 14.6 16.8 31.4 covenants, as the Securitisation Group has exercised its ability to Impact of: disregard the impact of the new standard to maintain consistency Digital activities 1.0 0.9 1.9 of measurement. Salaries 2.7 1.5 4.2

Other 0.1 (1.0) (0.9) For more information see note 35. IT support fees – 0.5 0.5 Central overheads – 2020 18.4 18.7 37.1

The increase in salaries includes increases of £1.6 million relating to staff incentive bonuses, £0.6 million for option scheme charges and £0.6 million temporary staff costs primarily to increase the cover in the call centre during the pandemic.

Non-underlying items of £9.8 million (2019: £15.7 million) and IFRS 16 credit of £0.1 million (2019: nil) are excluded from underlying costs resulting in total central costs of £46.8 million

(2019: £47.1 million).

In addition to the above costs, maintenance capital expenditure of £1.4 million has been incurred on central projects predominantly relating to IT that will help the business as a whole operate more efficiently.

Outlook The Group will continue to invest in central functions and marketing activity to support the Group’s plans.

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Dignity plc Annual Report & Accounts 2020 27 Principal risks and uncertainties

Risk management is embedded throughout the business with all employees aware of the role they play. Risk governance

Risk appetite The Board has overall responsibility for the Group’s internal Risk appetite is the level of risk the Group is willing to take to control systems and for reviewing their effectiveness. This has achieve its strategic objectives and is set by the Board. The been designed to assist the Board in making more risk-informed, Board looks at the Group’s appetite to risk across a number strategic decisions with a view to creating and protecting of areas including market, financing, operations, strategy shareholder value. and execution, developments, cybersecurity and technology and brand.

There has been no change to the Group’s risk appetite in The risk management framework the period.

Our approach to risk management Governance Accountability and Communication The Group has a well-established governance structure with ownership internal control and risk management systems. The risk management process:

• Provides a framework to identify, assess and manage risks, both positive and negative, to the Group’s overall strategy and the contribution of its individual operations. IDENTIFY & ANALYSE • Allows the Board to fulfil its governance responsibilities by Risks and impact identified making a balanced and understandable assessment of the • Risks mapped to controls currently in place operation of the risk management process and inputs. • Residual risks prioritised for mitigation • Confirmed with the Board Responsibilities and actions GIC OBJEC TE TI

RA VE

ST S The Board h The Board is responsible for monitoring the Group’s risk and h

their mitigating factors. S T

S

R

E

A

V T

I RISK ASSESSMENT

E T

G

Risk process C

E

PROCESS I J

IMPLEMENT C ACTION

B

Every six months the Audit Committee formally considers O

O

B

C

J

I

the risk register and approves it for adoption by the Board. E C Controls identified Existing control G

T E

I T

V

A

enforced and tested E R S • Suggested action T

• Remedial action plans S plans agreed

Risk assessment h Executive Directors and senior management are responsible implemented • Options for controls for identifying and assessing business risks. • Board member identified and costed accountable • Plans approved by the Board Identifying risk Risks are identified through discussion with senior management and incorporated in the risk register as appropriate.

Assess The potential impact and likelihood of occurrence of each risk is considered. Review Assess Report Respond

Mitigating activities Mitigating factors are identified against each risk where possible.

Review and internal audit The link between each risk and the Group’s policies and procedures is identified. Where relevant, appropriate work is performed by the Group’s internal audit function to assist in ensuring the related key controls, procedures and policies are understood and operated effectively where they serve to mitigate risks. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 31

28 Dignity plc Annual Report & Accounts 2020 Principal risks and uncertainties continued Strategic report

Links

See Executive Chairman’s review p.4 to p.14

See KPIs: p.15 to p.17

See Governance: p.44 to p.83

Risk status summary The ongoing review of the Group’s principal risks focuses on how Our principal risks and uncertainties these risks may evolve. Outlined here are the principal risks facing the Group. In assessing which risks should be classified as principal, Pre-arranged funeral plans we assess the probability of the risk materialising and the In November 2020, the Financial Conduct Authority (‘FCA’) issued financial or strategic impact of the risk. a statement welcoming the Government’s laying of legislation setting out a timetable for bringing the regulation of pre-need funeral plans within the remit of the FCA, expecting to take Operational risk management responsibility for the regulation of the sector in Summer 2022. • Significant movements in the death rate

On 2 March 2021, the FCA released their consultation on funeral • Nationwide adverse publicity plans and their proposed approach to funeral plans. Dignity will • Fall in average revenue per funeral or cremation resulting be engaging constructively through the consultation process from market changes which closes on 13 April with final regulations expected to be • Disruptive new business models leading to a significant published in Q3 2021. reduction in market share • Demographic shifts in population In order to carry out regulated funeral plan activities, firms must be authorised by the FCA. Continuing with regulated activity • Competition without authorisation will be a criminal offence. • Regulation of pre-arranged funeral plans • Regulation of the funeral industry Dignity believes that this regulation is necessary and welcomes • Changes in the funding of the pre-arranged funeral its planned introduction. plan business

• Direct cremations COVID-19 has created new risks relating both to our ability to deliver our services in the context of restrictions imposed • Cyber risk by the pandemic and the health and safety implications for • COVID-19 response related risks our colleagues. The potential risks are assessed regularly in light of the developing guidance and commentary from Financial risk management HM Government. • Financial Covenant under the Secured Notes The Group has business continuity and pandemic plans that are invoked, reviewed and adapted as necessary. Emerging risks Accordingly, the ability to maintain average revenue is influenced As part of the July 2018 update to the UK Corporate by changes in the competitive landscape and the continued Governance Code, Listed companies are required to identify impact of COVID-19. the procedures they have in place to identify emerging risks faced by the business and an explanation of how these are Competition and Market Authority’s Market Investigation: managed or mitigated. This year we have conducted a formal exercise to identify and assess emerging risks facing the Change in risk business and these are outlined on page 32. The CMA’s Final Decision Report into the supply of services by funeral directors at the point of need and the supply of Emerging risk and horizon scanning are integrated as part crematoria services was published on 18 December 2020 such of regular risk discussions and we will continue to embed that the risk of unexpected findings has now reduced. The Group this further going forward. supports the CMA’s conclusions which focus on measures to support consumer choice and transparency and welcomes the recommendations to Government for quality and standards regulation in the UK. The principal risks we have identified We maintain a detailed register of principal risks and uncertainties covering strategic, operational, financial and compliance risks. We rate them according to likelihood of occurrence and their potential impact. In the tables on pages 29 to 32 we provide a summary of each risk, a description of the potential impact and a summary of mitigating actions.

Key: Risk trend measures

Risk exposure increased

Risk exposure decreased No significant change

New emerging risk V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 32

Dignity plc Annual Report & Accounts 2020 29

Operational risk management

Risk description and impact Mitigating activities and commentary Change

Significant movements in the death rate The profile of deaths has historically seen intra year changes of +/- 1 per cent giving There is a risk that the number of deaths in any year the Group the ability to plan its business accordingly. The ONS long-term projection is significantly reduces or increases. This would have a for deaths to increase. direct result on the financial and operational performance The risk is mitigated by the ability to control costs and the price structure and the ability of both the funeral and crematoria divisions. to acquire funerals and crematoria, although this would not mitigate a short-term 2020 has seen unprecedented times with COVID-19 significant reduction in the number of deaths. impacting all our lives. This has impacted our operations, The number of deaths in 2020 was 663,000 which was 14 per cent above the prior year our staff and resourcing. and significantly higher than originally anticipated before the onset of the pandemic. It is currently unknown over what time frame the death rate will normalise. Our planning will continue to be based on the long-term expectations as provided by the Office of National Statistics. Operationally, we have spent time understanding lessons from the dramatic increase in deaths due to COVID-19 to ensure we continue to respond professionally and safely. A key part has been staffing: absence levels peaked at circa 16 per cent compared to normal levels of one or two per cent. Where required, this was and continues to be managed through a national provider of temporary resource. In the Crematoria and Memorial Group, staff have been upskilled and cross trained to provide cover as required.

See Executive Chairman’s review: p.4 to p.14

Nationwide adverse publicity This risk is addressed by the strategic decision to support development of strong national Nationwide adverse publicity for Dignity could result brands via the Group’s websites, TV and radio advertising and increased awareness of the in a significant reduction in the number of funerals or Group and its services and by the Corporate Communications team monitoring and cremations performed in any financial period. For pre- responding, where required, to media statements, articles and interviews. arranged funeral plans, adverse publicity for the Group In addition, the Group maintains a strong system of internal control to ensure the business or one of its partners could result in a reduction in the is managed in line with its strategic objectives. number of plans sold or an increase in the number of plans cancelled. This would have a direct and significant See The Client Survey performance: p.17 impact on the financial performance of the Group. The risk is increased as the Dignity brand is marketed more widely.

Fall in average revenue per funeral or cremation The Group’s strategic review has resulted in a more efficient business that can resulting from market changes accommodate more competitive pricing, but which continues to provide clients with a There has been increasing price competition in the greater range of choice, underpinned by excellent client service. This will be supported funeral market, resulting in material price reductions by by strong reputational management. the Group in recent years. It is highly likely that pricing The Group will continue to adapt to serve evolving client needs. This will be through pressure will remain for the foreseeable future and it investment in digital capabilities including an enhanced reporting capability of business may not therefore be possible to maintain average intelligence and management information which will enable risks and trends to be revenue per funeral or cremations at the current level. identified promptly and accurately. This risk has increased due to COVID-19 as the Group has experienced lower average revenues than originally expected: these are anticipated to return to the levels previously experienced although the period of time needed for this to occur is currently unknown. Awareness of simple funerals and Simplicity Cremations has increased during the pandemic. See Operating review: p.18 to p.21

Disruptive new business models leading to The Group believes that this risk is mitigated by its reputation as a high-quality provider a significant reduction in market share and with recommendation being a key driver to the choice of funeral director being It is possible that external factors such as new used. In addition, the Group’s actions on pricing and promotion seek to protect the competitors and the increased impact of the internet Group’s funeral market share by offering more affordable options. This focus on on the sector, could result in a significant reduction in affordability has allowed our market share to begin to stabilise. market share within funeral and crematoria operations. For crematoria operations this is mitigated by the Group’s experience and ability in This would have a direct result on the financial managing the development of new crematoria. performance of those divisions. Additionally, the combination of the development of strong national brands and significant investment in digital capability together with a range of product and price offerings to clients will strengthen the Group’s competitiveness.

See Operating review: p.18 to p.21

Demographic shifts in population In such situations, Dignity would seek to follow the population shift by rebalancing the There can be no assurance that demographic shifts in funeral location network together with meeting the developing cultural requirements. population will not lead to a reduced demand for funeral services in areas where Dignity operates. See Operating review: p.18 to p.21 V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 33

30 Dignity plc Annual Report & Accounts 2020 Principal risks and uncertainties continued Strategic report

Operational risk management (continued)

Risk description and impact Mitigating activities and commentary Change

Competition The purpose of our root and branch review is to position the Group for all eventualities The UK funeral services, crematoria and pre-need whether driven by the rapidly changing competitive environment in which we operate, markets are currently fragmented. the changes resulting from the CMA’s measures to support consumer choice and There could be further consolidation or increased transparency and recommendations to Government for quality and standards competition in the industry, whether in the form of regulation in the UK or in response to the COVID-19 pandemic. intensified price competition, service competition, over The funeral service model will be adapted to better suit evolving client needs and to capacity facilitated by the internet or otherwise, which improve efficiency. We provide clients with a more tailored service, allowing them to could lead to an erosion of the Group’s market share, choose how they wish to interact with Dignity in arranging a funeral through mobile average revenues or an increase in costs and staff and improved digital capabilities. consequently a reduction in its profitability. We continue to develop a new tiered funeral pricing proposition, that will provide Failure to replenish or increase the bank of pre-arranged greater flexibility to meet individual client needs. funeral plans could affect market share of the funeral By unbundling our prices and services to provide our clients with greater flexibility division in the longer-term. to create the right funeral, we will be able to provide greater consistency and Competition continues to intensify, with additional competitiveness on price, while reflecting Dignity's premium service levels. funeral directors opening at varying price points, A significant online presence and visibility leverages our scale and addresses the needs alongside an increase in the popularity of direct of increasingly digitally focused clients. Through the Dignity and Simplicity names, cremations. we are leveraging scale advantages in the digital age. We will continue to promote the Group's commitment to high standards of care, quality of service delivery and competitive entry prices. We also recognise that our established local funeral trading names continue to have significant value in the communities they serve. Through better allocation of our resources, the resultant efficiencies will allow us to reduce the number of funeral locations and their associated cost. Support functions are being centralised where appropriate to ensure a cost effective and consistent high standard of service. There are challenges to opening new crematoria due to the need to obtain planning approval and the costs of development. Dignity has extensive experience in managing the development of new crematoria. The Group offers a market-leading pre-need product, the marketing of which will benefit from the current and future significant investment in marketing and enhanced digital presence.

See Executive Chairman’s review: p.4 to p.14

Regulation of pre-arranged funeral plans Any changes would apply to the industry as a whole and not just the Group. FCA Regulation may result in changes to processes, Regulation could materially change the business model and would likely increase costs. systems, pricing, funding, capital requirements and We are engaging with the FCA through the consultations process to highlight the terms and conditions of plans. potential unintended consequences of the proposed ban on commissions. We have Regulation could affect the Group’s opportunity to sell diversified distribution through Partner and Direct channels, as well as a strong market pre-arranged funeral plans in the future or could result presence in the Whole of Life Funeral Benefit market. If this change is enacted it will in the Trading Group not being able to draw down the effect the whole industry, whilst we will experience a material drop in volumes, Dignity current level of marketing allowances. will be in a strong market position as a vertically integrated provider to grow alternative One immediate risk highlighted by the consultation channels that remain open post FCA regulation. paper is the proposed removal of commissions from Regulation of the pre-need industry by the FCA is now confirmed for Summer 2022. the Industry, this would have a significant impact on We believe that regulation is necessary and welcome its planned introduction. our ability to distribute through Affinity Partners. See Executive Chairman’s review: p.4 to p.14

Regulation of the funeral industry The Group already operates at a high standard, compared to the majority of our Regulation could result in increased compliance competitors, using facilities appropriate for the dignified care of the deceased. costs for the industry as a whole or other unforeseen consequences including capping of funeral and cremation prices. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 34

Dignity plc Annual Report & Accounts 2020 31

Operational risk management (continued)

Risk description and impact Mitigating activities and commentary Change

Changes in the funding of the pre-arranged funeral There is considerable regulation around insurance companies which is designed, plan business amongst other things, to ensure that the insurance companies meet their obligations. In the current regulatory environment, the Group The Trusts hold assets with the objective of achieving returns slightly in excess has given commitments to pre-arranged funeral plan of inflation. members to provide certain funeral services in the future. Volatility has continued to be seen in global markets since the year end. After a Funding for these plans is reliant on either insurance reduction in market values in the first quarter, the actuarial valuation in September companies paying the amounts owed or the pre-arranged 2020 showed both the NFT and Age UK trusts as showing a surplus. funeral plan Trusts having sufficient assets. Changes in the Trust investment strategy have been agreed and are in the process If this is not the case then the Group may receive a lower of being implemented. amount per funeral. See note 30.

Direct cremations The Group has addressed this with Simplicity Cremations which offers low-cost Growth in the direct cremation market could reduce direct cremations without any initial funeral service that are both respectful and average revenue in the funeral business and adversely dignified. They are an affordable alternative to a full funeral or for those who wish affect the volume mix and average revenue in the to have a simple cremation. The Group also now offers a Simplicity pre-arranged crematoria business. funeral plan option. Simplicity Cremations is being promoted via a strong online presence together with TV advertising. Other media advertising is also planned.

See Executive Chairman’s review: p.4 to p.14

Cyber risk The Group has, in recent years, invested significantly in this area with the objective of Our business is at risk of financial loss, disruption or both upgrading all aspects of our systems and our internal resources and also using damage to the reputation of an organisation resulting external consultants to perform regular external and internal penetration tests, using from the failure of its information technology systems. the results to drive a continuous improvement programme. This could materialise in a variety of ways including The chance of an organisation falling victim to a cyber-attack is growing. Threats are deliberate and unauthorised breaches of security to gain more pervasive and sophisticated than ever. access to information systems. However, in addition to maintaining appropriate levels of Cyber Insurance we continue our investment in fit for purpose security controls, processes, and technology to allow us to maintain pace with the current threat landscape whilst proactively monitoring for breaches and improving internal understanding and communication of initial risks, mitigations and residual risks.

See Executive Chairman’s review: p.4 to p.14

COVID-19 response related risks In addition to our business continuity and pandemic planning, the risk is mitigated by COVID-19 has created new risks relating to our ability to illness tracking, the use of agency staff and staff redeployment. deliver our services in the context of restrictions imposed The Group has issued Operational Guidance and a PPE policy, secured an increased by the pandemic and was added to the risk register as supply of PPE and emphasised HM Government policy such as social distancing. part of the 2020 Interim Report. We have modelled forward- looking scenarios considering volumes, changes to service The potential risks of COVID-19 to the Group are assessed and revenue and Government intervention. regularly in light of guidance and commentary from HM Government. Primary risks include: We have contingency plans and an escalating route for operations and central offices to redeploy resources from other teams and locations. (i) a lack of availability of staff in operations due to illness, self-isolation or Government policy including Test and We have established central planning of capacity, put new capacity in place, leveraged Trace which may result in a material number of Local Resilience Forums and super-mortuary facilities. colleagues needing to self-isolate at the same time In addition, the Group recognises the toll that the pandemic has taken on colleagues. impairing our ability to provide services; Issues include mental health, isolation and matters arising from working from home. (ii) the need to keep staff safe in the COVID-19 crisis; The Group provides the Employee Assistance Programme to all staff which provides access to anonymous, independent counselling services and advice to help manage (iii) a loss of profit due to the cost of our response plans, any personal wellbeing concerns and provide additional emotional, physical, and or HM Government intervention causes profit or cash financial support. concerns; and We are also investing in the training and accreditation of a number of colleagues in (iv) mortuary capacity and/or supply of consumables mental health first aid. is exhausted. If continuing long-term, COVID-19 and related social See Executive Chairman’s review: p.4 to p.14 distancing measures may result in lower revenues. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 35

32 Dignity plc Annual Report & Accounts 2020 Principal risks and uncertainties continued Strategic report

Financial risk management

Risk description and impact Mitigating activities and commentary Change

Financial Covenant under the Secured Notes The nature of the Group’s debt means that the denominator is now fixed unless The Group’s Secured Notes requires EBITDA to total further Secured Notes are issued in the future. This means that the covenant debt service to be above 1.5 times. If this financial headroom will change proportionately with changes in EBITDA generated by the covenant (which is applicable to the securitised subgroup securitised subgroup. of Dignity) is not achieved, then this may lead to an Event Current trading continues to support the Group’s financial obligations, however of Default under the terms of the Secured Notes, which lower reported profitability increases the risk of breaching covenants. could result in the Security Trustee taking control of the Securitisation Group on behalf of the Secured To act as a mitigation against this risk, in 2020 the Group completed an internal Note holders. restructure of its trading assets which increases covenant headroom. In addition, the Group is required to achieve a more See Financial review: p.22 to p.26 stringent ratio of 1.85 times for the same test in order to be permitted to transfer excess cash from the Securitisation Group to Dignity plc.

Emerging risks The Group continues to scan for emerging risks through the processes noted above. The key areas where additional risk is appearing, all of which are extensions of risk already identified above, are as follows:

Risk description and impact Mitigating activities and commentary Change

COVID-19 response related risks The Group has business continuity and pandemic plans that are invoked and reviewed New COVID-19 has resulted in a risk relating both to our ability as necessary. In addition, and to manage staff absences, we have used a national to deliver our services due to restrictions imposed and provider of temporary resource. the health and safety implications for our colleagues.

Regulation of pre-arranged funeral plans This emerging risk is mitigated by the high standards of selling and administration New The FCA published its consultation paper – Funeral Plans: of pre-arranged funeral plans operated by the Group, we have been preparing for Proposed approach to regulation on 2 March 2021. regulation for the last 12 months. The market will be required to adhere to the final post Dignity as a vertically integrated provider will still be in a strong market position with consultation regulations with effect from July 2022. continuing distribution through our funeral locations and the direct to consumer marketing model in existence today. However, if the current proposed ban on commissions were to be enacted, it would have a material effect on volumes for the market and Dignity. Changes imposed by the FCA will apply to the industry as a whole.

Cyber risk We continue our investment in fit for purpose security controls, processes, and New Our business like all others is at risk of financial loss, technology to allow us to maintain pace with the current threat landscape whilst disruption or damage to the reputation of an organisation proactively monitoring for breaches and improving internal understanding and resulting from the failure of its information technology communication of initial risks, mitigations and residual risks. systems. This could materialise in a variety of ways including deliberate and unauthorised breaches of security to gain access to information systems. The chance of an organisation falling victim to a cyber-attack is growing. Threats are more pervasive and sophisticated than ever. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 36

Dignity plc Annual Report & Accounts 2020 33 Viability statement

In accordance with Provision 4.31 of the UK Corporate Governance Code, the Board has assessed the Group's viability taking into account its current position, the Boards assessment of its business prospects, and its principal and emerging risks.

The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the subsequent three years to December 2023.

Consistent with the prior period, three years has been selected as the appropriate period of review for the following reasons:

• This period aligns with our current medium-term strategic plan and forecasting; and • Performance is significantly impacted by deaths which are increasingly difficult to forecast beyond 2023 due to the uncertainty the COVID-19 pandemic has had on the medium-term death forecast.

The key consideration of viability is the Group’s ability to service its Secured Notes as and when those obligations fall due, twice a year, totalling approximately £34 million per annum (see Going Concern review for further details on the related covenants which are tested quarterly). In making this statement the Directors have fully considered the principal and emerging risks facing the Group and have stress tested the impact of a combination of these risks with severe but reasonable scenarios, and the effectiveness of any mitigating actions. These scenarios were then reviewed in the context of the Group’s ability to generate funds to meet those obligations and comply with the debt service cover ratio (‘DSCR’) covenant.

The scenarios build on the sensitised base case used for the Going Concern review which assumes that the impact the COVID -19 pandemic has had on the Group continues for the remainder of 2021 with recovery expected from the beginning of 2022. The scenarios have then specifically considered the following:

• the possibility of 60,000 lower deaths in 2023 compared to the current ONS forecast caused by the excess level of deaths seen recently due to COVID-19; • no recovery to the current 70:30 mix and average revenue; • a worsening of the mix to 65:35 and the average revenue impact; • a 50bp reduction to market share in 2021 and beyond; • £100 reduction in cremation average revenue; and • various combinations of the above.

The Group has also specifically considered:

• the Group’s current position and trading prospects; • the current and ongoing strategy; • the Board’s appetite for risk; and • a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, and how they are managed, as explained in this Strategic Report (pages 27 to 32).

Notwithstanding the above, the Directors confirm that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period to December 2023. It is recognised that future assessments are subject to a level of uncertainty and, therefore, future outcomes cannot be predicted with certainty.

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34 Dignity plc Annual Report & Accounts 2020 Non-financial information statement Strategic report

Our objective is not only to provide and enhance the reputation of our Group but also to promote and embed and build the culture of caring, responsibility and performance that adds value to our clients, our people, our shareholders and the local communities we serve. Our corporate responsibility activities are an important way for us to deliver upon our strategic objectives. We believe that the best way to support a sustainable business is to act in the long-term interests of all our stakeholders, in addition to making a positive contribution to the communities in which we operate. The following table summarises the non-financial information provided in the Annual Report and demonstrates how it is linked to the reporting requirements of sections 414CA and 414CB of the Companies Act 2006.

Reporting requirement Impacts Relevant sections of Annual Report and related policies

Employees We are truly a people business because we help people at an extremely difficult • Executive Chairman’s Review – page 4 time in their lives. Meeting their needs means that our employees must be caring, • Corporate and social responsibility – page 38 thoughtful and truly engaged with those they serve, which they are. Dignity staff show clients care and commitment demonstrating what we call ‘The Dignity Way’. • Directors’ Report – page 82 This describes a special culture and way of working that means delivering the highest • Code of Conduct (1) standards of service and going the extra mile. In this COVID-19 pandemic, we have • Equality and Diversity Policy Statement(1) had many staff who have isolated from their families in order to continue their jobs and serve their communities. • Health and Safety Policy (1) We believe that the quality of our people is a strong enabler of business growth. • Our CSR commitments We value our people as they are a great asset. We support them by recognising and rewarding performance and long service plays a key part in this. We aim to provide a safe working environment, encourage personal development, responsibility and respect, and attract a diverse and inclusive workforce.

Environment We are committed to maintaining the quality of the environment in which we • Corporate and social responsibility – page 40 all live and we aim to reduce the impact of our operations so that we act in an • Our CSR commitments(1) environmentally friendly manner.

Waste disposal Dignity produces waste that is hazardous. Specifically, these are – items such as • Corporate and social responsibility – page 40 gloves used for handling the deceased, PPE, waste arising from embalming and • Safe Handling and Use of Substances Policy mercury from cremator abatement, which are placed in dedicated containers and are collected by contractors and incinerated. All sites where this happens have • Waste Disposal Mission Statement been registered as required under the legislation. All other waste is disposed of in accordance with local authority regulations. The Regional Health and Safety Managers also monitor this area. A waste disposal mission statement has been issued to all sites.

Crematoria emissions Crematoria are subject to emission controls from the local authority areas in which • Corporate and social responsibility – pages 40 and 41 they are sited. They are licensed on an annual basis with quarterly emissions testing • Our CSR commitments(1) information being submitted to the local authority. All cremators are subject to rigorous maintenance schedules completed by an external contractor. Air Pollution Control is a risk for all crematoria. The Group’s nominated service provider completes a planned test programme on all cremators which includes emissions testing. This mitigates the risk of any air pollution control issues.

Ethical Sourcing There is a risk that Dignity could use a supplier that manufactures or purchases • Modern Slavery Act Statement(1) goods that are made using slave, forced or child labour. • E-Learning Module This risk is mitigated firstly by purchasing via a reputable agent and secondly by ethical • Our CSR commitments(1) audits. Factories that supply Dignity are inspected by the General Manager of Dignity Manufacturing on a three yearly cycle and audit of ethical production and processes undertaken in conjunction with the owners of those factories. An E-Learning Module addressing the Modern Slavery Act is required to be completed by colleagues.

Human Rights We are committed to ensuring that there is no modern slavery or human trafficking • Modern Slavery Act Statement (1) in our supply chains or in any part of our business. Our stated commitment is to act • Our CSR commitments(1) ethically and with integrity in all our business relationships and to implement and enforce effective systems and controls to ensure slavery and human trafficking is not taking place anywhere in our supply chains or in any part of the business.

Anti-corruption and We are committed to conducting our operations in a fair and ethical manner and • Anti-bribery and Corruption Policy(1) anti-bribery will not tolerate any form of bribery or corruption from employees, suppliers or • Money Laundering Policy other parties. • Code of Conduct(1) • Ethics and Conflicts of Interest Policy • Annual declarations of compliance with both the Ethics and Conflicts of Interest Policy and other relevant policies and laws

Due diligence processes We have induction, training and e-learning programmes to ensure that our policies • For our strategy and business model, relationships implemented in the and processes are understood and implemented by our employees. Our policies and services, see the Executive Chairman’s Review pursuit of policies and processes promote and embed a culture of responsibility and performance pages 4 to 14 that adds value to all of our stakeholders. Each year, an Annual Compliance • Our non-financial key performance indicators are Declaration is completed by each member of the Executive and Senior Leadership shown on page 16 Teams for the individual to confirm compliance with all applicable rules, regulations • For our principal risks and uncertainties and how they and policies. are mitigated, see page 27

(1) These can be found on the Group’s website www.dignityplc.co.uk. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 38

Dignity plc Annual Report & Accounts 2020 35 Corporate and social responsibility report A responsible, sustainable and inclusive business

Reaffirming our commitment to our core social purpose Our business and people have truly been tested by the challenging events of 2020. Our response has clearly demonstrated the strength and resilience of our business, the dedication of our people in whichever role they play and ultimately reaffirmed our commitment to our core social purpose.

Our culture and commitment to our stakeholders Commitment to doing business the right way is in the DNA of the Dignity Group. We are the only publicly listed company in the UK operating in the funeral sector and as such have a responsibility as a good corporate citizen. As one of the leading providers of funeral services in the UK, we seek to earn the trust of our clients, society and our wider stakeholders by acting with integrity and a deep sense of responsibility at all times. We look to build relationships with all our stakeholders based on openness and continuing dialogue.

Our stakeholders include: We are a caring and responsible business and at • Clients its heart is a core social purpose to help people • Communities at one of the most difficult times in their lives; • Employees for today, tomorrow and future generations. • Investors • Policymakers This purpose connects us with our clients and communities, inspires our people and reinforces Why it is important to us Good and authentic CSR enhances business reputation. our commitment to society. It is critical to the It can help to raise awareness among consumers, increase long-term success of our organisation. brand recognition and drive greater levels of engagement and satisfaction with stakeholders. We also see benefits specifically We provide a vital service to those in need and among our own people, who feel a strong sense of pride we do so in a sustainable manner that is both working for a demonstrably responsible company and become great ambassadors for it within their own networks. This shows socially and environmentally aware, as well as the importance of not only embedding responsible practices commercially successful for the benefit of all throughout the business but sharing our ambitions and our stakeholders. achievements too.

Our core social purpose drives our approach

Social Environmental Governance We will continue to be a responsible and inclusive business – in how we operate and behave, serve our clients and society, respect our people and the environment.

Our long-term approach to sustainability enables us to demonstrate, measure and improve our performance in those areas where we can make the greatest impact and deliver the most significant value. Managing Our Clients Colleagues Environmental Impact Throughout this section we outline our commitments and summarise our actions in 2020:

• Delivering for our clients.

Being a • A meaningful and positive impact in our communities. Communities Responsible Business • Our people, culture and values. • Safeguarding the environment. • Responsible business practice. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 39

36 Dignity plc Annual Report & Accounts 2020 Corporate and social responsibility report continued Strategic report Serving our clients with care and compassion

Care that continues long after the funeral Our commitments Many of our locations have a longstanding tradition of • We exist to serve our clients; organising memorial services during the festive season, • We earn their trust by focusing on their providing recently bereaved families with an opportunity to commemorate those they have lost. COVID-19 restrictions needs and delivering excellent service; meant such face-to-face gatherings were not possible last • We put ourselves at the heart of local Christmas, yet that did not stop our colleagues showing communities; and clients how much they care.

• We are determined to make a real They made use of digital technology to webcast services difference to the people we interact for families to watch at home, sending out orders of service with every day. and encouraging them to light a candle of remembrance. Where live streaming could not be supported, many services were pre-recorded and made available for secure playback through our local webpages.

Stars shine bright Our crematoria proudly came together to honour the deceased and create poignant visible tributes at all 46 sites. Dignity supports and guides clients at every step Families were invited to dedicate a star shaped Christmas tree tag to a loved one and the displays were completed of the funeral arrangements, while always treating their with specially-commissioned plaques bearing the words: loved ones with the greatest care and professionalism. in dedication to all those who have shown strength in 2020. There was a charitable element to the initiative too. Colleagues at each crematorium selected a local cause and made a £500 donation, plus any additional contributions families wished Creating safe spaces to offer. We understand how difficult it can be to lose a loved one, especially in such challenging times. Government guidance has Care and compassion are second nature to us whenever resulted in changes to how we work, but it does not compromise a death occurs, but Christmas can be a particularly difficult our ability to arrange dignified funerals where our clients can time for those coping with grief. Just reaching out to clients properly say goodbye. and offering them our support and best wishes can make a real difference. We are taking care to ensure clients feel completely safe with us. Our funeral homes are COVID-secure for those who still wish to Delivering excellent client service visit us during the arrangement process, with rigorous hygiene Client service and experience is at the heart of everything we routines in place, including everywhere we care for the deceased. do and it is the central element that connects all our people regardless of their role. Clients & Community Before every funeral, we carefully clean and prepare our

| limousines. Thanks to the installation of perspex partitions, these vehicles provide a safe environment for transporting We closely monitor the results of our client surveys which are families to a service. conducted by our Funeral services division. This is one of our current measures of how these services meet or exceed client Social A gift to treasure expectations. Our consistently high satisfaction scores reflect Personal touches always make a funeral more meaningful. At the strength of our relationships with our clients. We listen to the height of the pandemic, a team of colleagues in Lancashire our clients and use our survey responses to focus on areas decided to crochet rainbows in their spare time, placing one where we can improve and add value. on each coffin while the deceased was in their care. Meeting and exceeding expectations After the funeral, the rainbows were offered to family members as a gift. Not only does the rainbow itself serve a symbol of 98.9% peace and hope, recipients were especially grateful to have a In 2020, 98.9 per cent (2019: 99.2 per cent) of respondents keepsake that had been with their loved one throughout their said we met or exceeded expectations. final journey. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 40

Dignity plc Annual Report & Accounts 2020 37

Playing our part in local communities and having a positive social impact

Putting others first Our colleagues pride themselves on being active in their communities, regularly helping out with special events, communal celebrations and getting behind locally-focused charities. This past year has, of course, been decidedly different because of measures imposed to limit the spread of COVID-19. However, the enthusiasm and willingness of our people to put others first and make meaningful contributions remains as strong as ever.

For some, it has been about fundraising, swapping mass participation events for virtual challenges in support of vital causes including life limited children, mental health, heart disease, homelessness, animal welfare, food banks and the air ambulance service.

Others have made use of their prominent locations on local high streets to recognise key calendar events and create striking window displays – rainbows offering thanks to the nation’s keyworkers and poppies for Remembrance Sunday to name but a few.

Music to their ears At a point when lockdown restrictions were beginning to ease, teams in the North East took to the road with Dignity’s Charity Organ.

They visited several care homes in the region, using the Victorian-style fairground organ to play musical recitals which residents and staff could enjoy from the safety of their rooms and communal areas. A small gesture, but a welcome distraction for those having to shield and stay separated from their families.

Helping to transform lives

Our nominated charity Giving back to society Dignity is delighted to announce a new three year partnership We want to play our part in driving positive outcomes for with Teenage Cancer Trust and colleagues across the country society and we know that through our actions and by making will be working together to find fun and creative ways to a meaningful contribution in the local communities we live raise money for young people who are facing the toughest and work in that we fulfil this objective. of times.

Teenage Cancer Trust is the only UK charity dedicated to providing specialist nursing care for patients aged 13-24 who have cancer. Their support puts young people in the best possible place, physically, mentally and emotionally, for their cancer treatment and beyond. Teenage Cancer Trust relies on the generosity and goodwill of others to fund its expert nurses, support teams and 28 hospital units. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 41

38 Dignity plc Annual Report & Accounts 2020 Corporate and social responsibility report continued Strategic report Creating an open culture and safe and inclusive workplace

A different approach In a year like no other, there has been a fundamental shift in Our commitments how many of our colleagues perform their roles. They have • We are all part of one team, adapted quickly to working from home wherever possible, performing at our best when embracing digital technology to stay in daily contact with their we work together; team members and make key processes paper-free.

• We treat each other with When new challenges emerged, such as the need for some patience and kindness; individuals to shield, or the closure of schools, we remained fair and flexible in our approach to help alleviate the strain. • We nurture talent and create The willingness of colleagues to step in and assist, for example opportunities for those who by working in different locations or taking on additional want to develop; and responsibilities, also deserves recognition and praise. • We aim to provide a safe working environment; ensuring employee Looking after each other health, safety and wellbeing. We care deeply about the welfare of our people. Their desire to look after our clients is what sets us apart, but equally that must not come at the expense of their own health and wellbeing.

While we have supported those unable to take their full allocation of annual leave by carrying over unused days for a Out of the most testing of circumstances has come an period of up to two years, everyone is still being encouraged exemplary response from our people. They help each to regularly take time out and recharge. other in order to help families in need, creating standards of care we can all be immensely proud of. Workplace safety, culture and behaviours Safety in the workplace remains a priority, helping to protect the people who work at, and visit, our premises. Working in a safe environment allows us to focus on delivering excellent service to our clients while also supporting employee engagement. Stay safe and stay well Dignity’s Health and Safety team provides support services to Working safely our branches, crematoria, manufacturing site and head office locations. Alongside Health and Safety training, we are also Frontline colleagues have a consistent supply of the investing in the training and accreditation of a number of personal protective equipment they need to carry out their colleagues in mental health first aid. roles in safety. We publish detailed operational guidance which remains under constant review to reflect any changes in COVID-related safety measures and recommended conduct across each of the four devolved nations. Reduction in reportable accidents

Do not struggle alone 24% Throughout the pandemic we have sought to discuss Since 2009 the number of accidents has reduced openly the importance of looking after our mental health. by 24 per cent. We regularly share information, tips and videos through

Our People, Culture & Values Our People, Culture our internal news channels, covering topics such as stress

| management, isolation, healthy eating, exercise and sleep. Managers are advised on how to recognise the signs that someone in their team might be struggling to cope.

Social All colleagues have 24/7 access to a confidential Employee Assistance Programme that is available online and over the telephone. We also promote wider industry schemes including Our Frontline for critical workers and emotional wellbeing support via the National Association of Funeral Directors. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 42

Dignity plc Annual Report & Accounts 2020 39

Long service 28% Our values and behaviours encapsulate who we are, 28 per cent of our people have worked at Dignity support our purpose and help us to preserve a strong for more than 10 years. and positive culture.

Building and promoting an inclusive and diverse Employees and service workplace culture Total employees/ratio Employee service Dignity is dedicated to building a workforce which is (% & number) (% & number) representative of the communities we serve in all aspects of diversity, and encouraging a culture that celebrates difference. Our inclusion and diversity policies seek to demonstrate our commitment to providing an inclusive, equal and fair working 3,323 environment.

Strengthening our teams Living up to our promise of taking the greatest care relies on Male: 47% (1,574 employees) Less than 1 year: 24% (800 employees) us recruiting well and having the best people performing the

Female: 53% (1,749 employees) 1–4 years: 31% (1,018 employees) right roles. We have focused this year on reviewing how we 5–9 years: 18% (587 employees) 10 –19 years: 18% (606 employees) recruit, identifying areas where we can simplify internal Over 20 years: 9% (312 employees) processes, ease the administrative burden on our hiring Employee diversity managers and reduce the time required to get from application Senior managers Senior and middle managers to offer. This is proving particularly beneficial for filling essential (% & number) (% & number) operational vacancies during the pandemic while demand for our services remains high.

Providing opportunities for existing colleagues We have taken steps to improve our promotion of internal vacancies, making them more accessible for colleagues who are eager to progress in their careers. Having such a breadth of talent at Dignity means we need to ensure new vacancies Male: 81% (25 employees) Male: 64% (118 employees) Female: 19% (6 employees) Female: 36% (66 employees) get maximum visibility, since the ideal candidate for a role can often come from within the business.

This has been achieved through the introduction of a new Driving employee engagement vacancies portal, which supports online applications as well as having searchable job listings. The next phase of the project Keeping everyone informed will be to improve the recruitment experience for external Our business has always communicated regularly with applicants so the process is more straightforward and offers colleagues and that need is stronger than ever now with less greater levels of insight into our culture and values. face-to-face contact taking place while many of us continue to work remotely. Existing internal news channels were repurposed at the start of the pandemic so related updates could be shared promptly. Empowering people with future skills

We established a communal online space specifically Enter the Learning Zone for our managers so it became easier to cascade key information and share ideas for best practice. We are Our learning and development function has been quick to also adding elements to make our main news area more respond to changing working practices, adapting traditional interactive, a recent example being the Good Deed Feed classroom-based programmes to make them suitable for where colleagues can upload personalised messages of delivery via digital platforms such as Teams. This was shortly thanks for great work or acts of kindness. followed by the introduction of our Learning Zone, a secure internet site dedicated to personal development. The Dignity Employee Forum was established to provide the opportunity for 17 elected employee representatives from The Learning Zone features a wide range of self-study all corners of the Group to represent colleagues. The Forum modules to help build key business and workplace skills and guide people towards wider responsibilities such as provides: a structured voice for colleagues and facilitates managing others. Feedback has been extremely positive and two-way communication between employees, management we have engaged with regular site users to help create new and the Board, supports a caring and open culture where modules based on real everyday needs. employees can make their voices heard. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 43

40 Dignity plc Annual Report & Accounts 2020 Corporate and social responsibility report continued Strategic report Safeguarding the environment

Identifying areas for improvement Our business aims to provide strong leadership in the pursuit Our commitments of safe and environmentally responsible workplaces. We are • Be environmentally responsible to mindful of the importance of minimising the impact our help maintain the quality of the business activities have on the environment and the need communities in which we work; to mitigate future risks wherever possible.

• Understand the potentially negative Under regulations set by the Department for Environment, contributions of our actions to the Food and Rural Affairs, 50 per cent of the cremations that environment and optimise how we take place in the UK must be subject to mercury abatement. manage them; and Our crematoria achieved a level of 56 per cent during 2020, having carried out a total of 74,500 cremations across all • Engage and inform our colleagues, 46 of our sites. promoting good practices across all job roles. An additional area of focus is looking at ways of proactively reducing carbon in our gas consumption, either by purchasing biogas as an environmentally friendly, renewable energy source, or buying carbon credits which would then help to finance carbon reduction projects both at home and abroad.

We recognise our environmental responsibilities and are working hard to lessen the impact of our operations by reducing carbon emissions, energy consumption and using resources more efficiently.

Managing our environmental impact Responsible and sustainable supply chains

Watching our waste Meeting increased demand It has been more than 12 months since we began working Dignity’s coffin manufacturing facility is the backbone of our with Veolia to handle our general and mixed recyclable waste. business, enabling us to provide a complete and seamless During 2020 we diverted 99.98 per cent of our waste from service to our clients. We utilise raw materials that originate landfill and this will reach 100 per cent in 2021 when we from well-managed and sustainable sources; in fact 98 per successfully implement a diversion solution for one remaining cent of the coffins we produce are made with timber certified business location. A proportion of the total waste handled by by the Forest Stewardship Council. Veolia is used for energy production, in our case enough to power 99 homes with electricity for a whole year. Demand for coffins increased dramatically in 2020, particularly in the early stages of the pandemic after the country entered Making the right choices its first national lockdown. The factory has been vital in our Thanks to a new partnership with the consultancy Inspired response to COVID-19, producing around 2,000 coffins a week Energy, we are getting greater insight into energy usage at its peak and a total of 75,000 by the end of the year, which is across our property portfolio. One objective is to ensure we 20 per cent more than in 2019.

Managing Impact & Performance are buying energy at the best prices, but by managing data Cutting edge technology helps make the manufacturing |

from our smart meters and energy bills we can also look for opportunities to make savings and reduce or offset process efficient and scalable, as clearly demonstrated over carbon emissions. recent months. But it is the expertise and craftsmanship within the team that ensures the end product always meets the high standards our clients expect.

Environmental 100% All of the electricity supplied to us across England, Wales and Scotland comes from 100% renewable sources.

98% 98 per cent of the coffins we produce are made with timber certified by the Forest Stewardship Council. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 44

Dignity plc Annual Report & Accounts 2020 41

200 Percentage Index Graph Scope 1 & 2 Only (Base Year 2009) 150

Total C02 (Market Based)

100 FTE Employees

Per cent Services Performed 1% 50 Operating Profit (in £m) Revenue (in £m) 1% reduction in our carbon emissions 0 Energy MWh during the period. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Environmental performance

Greenhouse gas emissions reporting for 2020 Methodology The Group reports its greenhouse gas to CDP on an annual basis in Our greenhouse gas emissions have been calculated on a per fulltime tonnes of carbon dioxide equivalent resulting from the combustion equivalent employee ratio. This intensity metric is the best measure of fuel (direct Scope 1 emissions) and that resulting from the available to the Group given the diversity of the property portfolio, the purchase of electricity (indirect Scope 2 emissions). three separate divisions of the business, and the absence of a similar business to benchmark against. The emissions for the last five years are as follows: We have calculated our Scope 1 and Scope 2 GHG emissions since 2020 2019 2018 2017 2016 2010 and work alongside Ecometrica Ltd to assist with our carbon Scope 1 15,710 15,844 16,028 15,535 15,616 emissions reporting. This supports greater transparency and accuracy Scope 2 53 59 174 423 7,106 of data. Emissions have derived from accurate consumption information on utility bills, smart meter readings and fuel card data. Total 15,763 15,903 16,202 15,958 22,722 Per FTE Employee 5.3 5.2 5.3 4.8 8.0 GHG emissions have been calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), using the market based on the Scope 2 calculation method Our energy consumption figures over the same periods are: together with the latest emission factors from recognised public 2020 2019 2018 2017 2016 sources, principally Defra. In addition, Dignity’s carbon emissions disclosure has been undertaken in accordance with the Companies MWh 94,175 94,067 95,147 92,121 91,413 Act 2006.

Acting with integrity through strong governance

Trust, Transparency and Accountability

Business integrity A number of procedures and policies are in place to further ensure responsible practice is embedded in the way we do business.

Dignity Code of Conduct Our Code of Conduct underpins the behaviours of everyone engaged by us when conducting business on our behalf. It is a statement of how we maintain good corporate citizenship in relation to all those who have an interest in our reputation.

Anti-Bribery & Corruption We insist on honesty, integrity and fairness in all aspects of our Responsible Business Practice

business and expect the highest standards of professionalism |

and ethical conduct. We will not engage in bribery or corruption in any form and have a zero tolerance approach to breach.

Equality & Diversity There shall be no discrimination or less favourable treatment of people in respect of age, race, religion or belief, gender, We are committed to the highest standards of sex, sexual orientation, pregnancy, disability or marital status.

governance as an essential constituent of the way We engage, promote and train our colleagues on the basis Governance we operate and behave based on trust, transparency of their capabilities, qualifications and experience, without discrimination. and accountability. Modern Slavery Act We are committed to implementing and enforcing effective Doing the right thing systems and controls to ensure slavery and human trafficking We believe that operating sustainably and responsibly is is not taking place anywhere in our supply chains or in any fundamental to creating long-term value. Our objective is part of our business. not only to strengthen the reputation of our company, but Supplier Code of Conduct also to promote and embed a culture of responsibility and We rely on our suppliers to provide important services that performance that adds value to our clients, our people, help us care for our clients and expect them to support and our shareholders and the local communities we serve. promote our core values of professionalism, compassion and respect. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 45

42 Dignity plc Annual Report & Accounts 2020 Section 172 Statement Strategic report Stakeholder engagement and decision-making

Our stakeholders Employee priorities: An open and collaborative Amongst Dignity’s stakeholders are: • Ensuring their health, safety and wellbeing; approach to stakeholder • Our clients who are at the heart of what we • A culture of fairness, respect and valuing; engagement do. We are here to help them at one of the • Opportunities to develop professionally; and most difficult times of their lives. Listening to • Attractive and fair rewards and benefits. Engaging and building trust with our clients and understanding their needs the broad range of stakeholders drives what we do as a business. How we engage with colleagues: that interact with, or are impacted • Both our Pre-Need Funeral Plan holders and • The Dignity Employee Forum was established by, our business is key to delivering the Trustees of the related Funeral Plan to provide the opportunity for 17 elected Trusts. Our commitment is quality, security employee representatives from all corners our strategy and ensuring our and peace of mind. of the Group to represent colleagues and success over the long-term. • Communities and the environment in which discuss business-related issues. The Forum we operate. We take our role as a provides: responsible corporate citizen extremely Section 172(1) Reporting seriously and recognise that our broader role – a structured voice for colleagues ensuring in society goes beyond creating value. We will information and feedback is provided to The revised UK Corporate Governance facilitate two-way communication between Code (‘2018 Code’) was published in July continue to be a responsible and sustainable business to meet our social responsibilities. employees, management and the Board 2018 and applies to accounting periods of Directors; and beginning on or after 1 January 2019. • Our colleagues who are fundamental to the operation of our business and for the – supports a caring and open culture where The Companies (Miscellaneous delivery of outstanding client service. Their employees can make their voice heard. Reporting) Regulations 2018 (‘2018 loyalty, compassion and commitment are MRR’) require directors to explain how Information is shared on topics such as essential to our business. financial performance, remuneration policy, they considered the interests of key • Our investors, our shareholders and strategy and vision. stakeholders and the broader matters bondholders, for whom who we aim to set out in Section 172(1) (A) to (F) of provide sustainable long-term value. the Companies Act 2006 (‘s172’) when Clients • Our suppliers. Dignity annually spends about performing their duty to promote the £200 million acquiring goods and services to success of the Company under s172. support our business needs and delivering Dignity monitors closely the results of client This includes considering the interest services to our clients. We engage with all surveys in order to focus on areas in which of other stakeholders which will have those in our supply chain to comply with we can improve our service and add value for an impact on the long-term success our values. our clients. Satisfied clients are essential for a sustainable and successful business. of the Company. • Both our pensioners and the Trustees of our pension funds who are reliant on good In 2020, we received 30,900 responses to our This s172 Statement, which is reported management and governance to facilitate surveys from clients who used our services. for the first time, reviews the principal our continued success. The results continue to demonstrate the decisions made by the Board of • We engage with Government and regulatory outstanding service provided by colleagues. bodies, such as the Financial Conduct 98.9 per cent of respondents said we met or Directors and how the Directors have exceeded their expectations and 97.9 per cent engaged with stakeholders. Authority and the Competition and Markets Authority, that both enact policies required of respondents said they would recommend us.

Our approach of a public company and that affect the funeral industry. Community initiatives In line with the reporting requirements, we have evolved our stakeholder Our commitment to our engagement section to describe our Helping people at one of the most difficult stakeholders times in their lives is Dignity’s core social stakeholders and how the matters set purpose. Contributing to the communities we out in s172 have been considered in Commitment to doing business the right way is in the DNA of the Dignity Group. We serve benefits both local people and Dignity Board discussions and decision-making. are the only publicly listed company in the UK as a business.

operating in the funeral sector, and as such Our colleagues continue to build strong links As a Board, we acknowledge our duty have a responsibility to fulfil our role as a good through engagement with local initiatives and to make the best decisions we can but corporate citizen. This means listening to our fundraising for charities and support many also to make sure that we communicate stakeholders and understanding what is events each year. well and lead by example. In the 2020 important to them. Our priorities are: financial period, the Board of Directors As a sector leader, we must look beyond our consider they have acted in good faith, own business performance, and consider • Build closer relationships locally, developing in a way most likely to promote the societal and economic factors in our wider a greater understanding of community and success of the Group for the benefits environment. It is essential, of course, that we clients’ needs; of its stakeholders as a whole. deliver value to our shareholders. But it is also • Recruit, train and develop local people; important that we provide quality and value to our clients and make a positive contribution to • Participate in activities that make a society. As a funeral company, we are involved difference; and in a fundamental and timeless human ritual • Act in the long-term interests of all our and we never lose sight of the responsibility stakeholders. this places on us. As a result, stakeholder These priorities enhance our reputation, interests are critical to the decisions we make. sustain longevity and contribute to local communities. Colleagues For details of the Group’s charity activity and community initiatives, please see the Corporate and social responsibility report We employ 3,323 people who we rely on to on page 37. provide our services in a caring, thoughtful and truly engaged way with the people and communities we serve. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 46

Dignity plc Annual Report & Accounts 2020 43

Decision-making and considering 1. 3. the long-term interests of Strategic review Response to COVID-19 stakeholders The combination of price competition and The employees of this organisation have changing consumer requirements has responded to the pandemic with tireless We recognise the importance necessitated a review of our business model effort to support both each other and our of engaging with stakeholders to to ensure our funeral and crematoria services clients during testing times and to provide inform our strategy and Board remain focused on delivering high-standards some closure for the bereaved. Their while enabling Dignity to adapt and lead in professionalism, flexibility and commitment decision-making. Relevant a changing marketplace. have been crucial to providing respectful, stakeholder interests are taken into high-quality care to the deceased and their account by the Board when it takes • Pricing and Brand – this is where we seek to families notwithstanding the daily obstacles grow market share through implementing presented by the pandemic: whether it be decisions. In making its decisions, a more client centric service model, a more high levels of colleague absence, sourcing the Board considers the outcomes flexible pricing structure and building our PPE or managing the pressure on of relevant stakeholder engagement, national brands. mortuary space. as well as the need to maintain • Our Operating Model – where we invest in Our frontline colleagues have been ably a reputation for high-standards and simplify the operating model to include supported by our head office staff who an enhanced network structure that is lower have embraced and adapted to new ways of business conduct, the need cost and provides better service and product of working. to act fairly and the long-term range than the competition. consequences of its decisions. • Streamline central support and invest in technology to centralise and automate 4. We believe that principal decisions administrative processes together with a Corporate development simplified, focused management structure. are both those that are material The Board has suspended the acquisition to the Group and/or those that The Board’s vision is to lead the funeral of small funeral businesses as it is are significant to any of our key sector in terms of quality, standards and inconsistent with the Group's strategy and stakeholder Groups. value-for-money. Our root and branch review plans for the future. The Group therefore will reposition Dignity as a more coherent, does not anticipate acquiring any further cohesive and technology enabled business funeral locations in the foreseeable future. The following principal decisions geared to meet the changing needs of our and activities demonstrate how the clients with an enhanced and very competitive Should opportunities of larger, more range of services and price options. established businesses become available, Board has assessed and addressed the Group will consider these on a case by different stakeholder interests in case basis. making decisions that support the 2. implementation of the Group’s 5. long-term strategy. Dividends Although the Group has significant cash Covenant levels resources and continues to be cash generative, in order to maintain maximum Whilst financial performance in 2020 means flexibility and liquidity, the Board concluded that the Group has comfortably achieved the that it was prudent to continue with the required covenant levels, it remained prudent temporary cessation of dividend payments. to plan for lower volumes in 2021 and 2022. The Group has an established track record of As a consequence, in July 2020, the Group returning cash to shareholders at appropriate completed an internal restructure of its times over many years and once the current trading assets which serves to further uncertain competitive environment becomes increase covenant headroom. clearer, it anticipates resuming dividend payments or returning excess cash to shareholders.

The principles underpinning s172 are not something that are only considered at Board level, they are part of our culture and are embedded in all that we do as a responsible business. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 47

44 Dignity plc Annual Report & Accounts 2020 Governance

In this section

45 Chairman’s introduction to governance 50 Governance structure 51 Board of Directors 52 Operating Board 53 Directors’ statement on corporate governance 58 Audit Committee report 62 Nomination Committee report 63 Report on Directors’ remuneration 81 Directors’ report V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 48

Dignity plc Annual Report & Accounts 2020 45 Chairman’s introduction to governance Governance

Transparent reporting Dear Shareholder, The Group has a clear purpose, and integral to delivering it is being a socially responsible company which demonstrates I am pleased to be able to present on behalf of the Board strong ethical behaviour within a framework of transparent the Group’s Corporate Governance Report for 2020. This and robust governance. report is intended to provide shareholders with a clear and comprehensive explanation of what good governance means Section 172 Statement within Dignity, what it means to us, the Board of Directors, how In line with the new reporting requirements of the 2018 it is applied and how it guides our decision-making. UK Corporate Governance Code, we have evolved our stakeholder engagement and included a section to describe how We are reporting for the first time in line with the UK Corporate our stakeholders and the matters set out in Section 172 of the Governance Code July 2018 (the ‘Code’). Following what has Companies Act 2006, have been considered in Board discussions been a challenging year for the Group both in terms of the and decision-making. The Board actively engages with our impact of COVID-19 and the extent of changes to the Board, clients, shareholders, employees and wider stakeholder Groups there are a number of areas where the Group are either when making decisions, and considers the impact of Group currently or have been for part of the year unable to comply activities on the community, environment and its reputation. with the Code which are explained later in this report. These matters of non-compliance are temporary and the Board’s Principles of the UK Corporate Governance Code 2018 continued objective remains to manage the Group for the The Principles set out in the UK Corporate Governance Code benefit of all stakeholders for which the application of good 2018 (the ‘Code’) emphasise the value of good corporate corporate governance is essential and ultimately to comply governance for long-term sustainable success. Whilst we are with the Code in all respects. reporting a number of areas where we have not been able to comply with specific Code provisions, we do not consider Good governance is, therefore, crucial at all levels within the this extends to any of the Principles set out within the Code. Group and it is the responsibility of the Board both to lead by Our response to the Principles which fall under the headings example and to set the tone from the top. It means ensuring below is set out on pages 48 and 49. that an effective internal framework of systems and controls exists which includes clearly defined authorities and • Section 1: Board leadership and Company purpose. accountability which promote success, whilst allowing risks to be managed to appropriate levels. To do this the Board must • Section 2: Division of responsibilities. make sound judgements whilst giving consideration to the • Section 3: Composition, succession and evaluation. views of our shareholders and other stakeholders. • Section 4: Audit, risk and internal control.

I would encourage you to participate in our Annual General • Section 5: Remuneration. Meeting on 23 June 2021 and take the opportunity to meet the Board. We will take formal questions at that meeting. Compliance with the UK Corporate Governance Code In the 2020 reporting period, Dignity plc was subject to the Code issued by the Financial Reporting Council (available at frc.org.uk) for the first time. As a listed company, Dignity is Clive Whiley, Chairman required to report on how it has applied the principles of the 17 March 2021 Code and this is set out in the following pages. Other than as detailed in the paragraphs below, Dignity has complied with the provisions of the Code throughout the period ended 25 December 2020. Since the period end to the date of this report, we have appointed a further independent Non-Executive Director which has improved our compliance across a number of Code provisions.

As stakeholders will appreciate, 2020 was a difficult and challenging year for all of us. Those of us in the funeral sector had to react, organise and scale-up to continue to ensure that both our colleagues and the bereaved families we serve across the UK have been protected and supported during this time.

As previously reported, I became the independent Chairman of the Board in September 2019 temporarily becoming Executive Chairman on 3 April 2020 following the departure of our former Chief Executive, Mike McCollum.

There has been further reorganisation at Board level which has and continues to be managed for the long-term benefit of stakeholders. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 49

46 Dignity plc Annual Report & Accounts 2020 Chairman’s introduction to governance continued Governance

Board Changes Board induction In 2020, the following Board changes occurred: Following appointment, an induction programme is provided to new directors so that he or she becomes as effective as possible • March: Dean Moore appointed as an independent in their role within the shortest practicable time. Non-Executive Director. • April: Clive Whiley (formerly independent Non-Executive The induction programme includes: Chairman) became Executive Chairman following the • Briefings with directors, senior managers and advisers. departure of our former Chief Executive, Mike McCollum. • A briefing on the role of a director and the framework in which • Jane Ashcroft (independent Non-Executive Director) the Board operates. stepped down. • Provision of Board and Committee papers and governance • June: Gillian Kent (independent Non-Executive Director) was documents such as the Schedule of Matters Reserved for appointed, and David Blackwood (independent Non-Executive the Board. Director and Senior Independent Director) retired. • Provision of corporate policies. • December: Richard Portman and Steve Whittern (both Executive Directors) stepped down. Andrew Judd, Director • Analysts’ reports. of Funeral Operations, was appointed to the Board as an Executive Director. Dean Moore was appointed Interim Directors’ Report Chief Financial Officer. The Directors present their report for Dignity plc for the period ending 25 December 2020. • Since year-end: Paul Humphreys, has been appointed as an independent Non-Executive Director. Corporate Governance The Group is committed to high standards of corporate As a result, the Company has been unable to comply with the governance, details of which are given in this report and the following Code Provisions during the periods noted: separate reports from the Chairs of: • 9. in respect of the separation of the roles of chair and chief executive (non-compliant from April 2020). • The Audit Committee; • 11. in respect of the proportion of the Board, excluding the • The Nomination Committee; and Chairman, who are considered to be independent. (non- • The Remuneration Committee. compliant from April 2020 to February 2021). • 12. in respect of the appointment of a Senior Independent The various sections of this report contain summarised Director. (non-compliant from June 2020). information from Dignity plc’s Articles of Association (the ‘Articles’) and the Companies Act 2006 which is the applicable • 17, 24 and 32. in respect of the composition of the Board’s English law concerning companies. The relevant provisions of key committees (non-compliant from December 2020, until the Articles or the Companies Act should be consulted if more February 2021). detailed information is needed.

The Company is also continuing to work to ensure that the Workforce engagement processes adopted by the Company achieve full compliance We rely on our colleagues to provide our services in a caring, in the areas of workforce engagement and assessing and thoughtful and truly engaged way with the clients and monitoring the culture within the organisation. communities we serve. We believe that the quality of our people is a strong enabler of business growth and is central At the current time and, in addition to the Executive Chairman, to delivering our purpose, vision, goals and our strategy. the Board comprises two Executive and three Non-Executive Directors, two of whom, Gillian Kent and Paul Humphreys are The Board seeks to maintain good channels of communication independent. James Wilson is a Non-Executive Director but, with all its employees and in accordance with the Code, the as a partner in Phoenix Asset Management Partners, is not Board has reviewed the mechanisms that it uses to engage independent. with its workforce. For a business that prides itself on communicating sensitively with clients, we have to ensure the The Company is in the process of searching for appropriate same care and consideration is shown towards our own people candidates for the role of Chief Executive and Chief Financial too. That means regular dialogue, which is accessible through Officer which will enable, Clive Whiley and Dean Moore to a variety of channels, with the opportunity for colleagues to relinquish their executive roles. Following these appointments, interact and easily share their feedback. the Board will comprise three Executive Directors and, excluding the Chairman, four Non-Executive Directors, three of whom Adopting a multi-channel approach has seen us develop digital are independent. communications solutions that sit alongside our established company newsletter. ‘Good to Great’ is a dedicated website The direct and indirect consequences of changing roles during housing, amongst many things, news, blogs and opinion polls. the year has demanded additional time commitment to Dignity from a number of Board members. Whilst the Executive More frequent and accessible communication is complemented Chairman, Interim Chief Financial Officer and our Independent by an increase in the face-to-face support available to colleagues, Non-Executive Directors have various roles with other particularly those in operational roles across funerals, companies, we have ensured that at all times each individual crematoria and manufacturing. Board member has the capacity to perform their roles on the Dignity Board. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 50

Dignity plc Annual Report & Accounts 2020 47

The Employee Forum provides a key opportunity for the Board • driving inclusion and promoting equal opportunities for all; to assess and monitor the culture of the business and we will be • ensuring our workforce, whether part-time, full-time or working to enhance this during the coming year. temporary, is treated fairly and with respect;

We consider that the mechanisms noted above represent an • eliminating discrimination; and effective mechanism for the Board to engage with the workforce, • ensuring that selection for employment, promotion, training, however due to the importance of our workforce to the business development, benefit and reward is based on merit and in line the Board will continue to review the situation and consider if with relevant legislation. incremental benefits can be obtained through the appointment of a designated non-executive director to lead in this area. Board leadership, purpose, values and culture Our purpose is to help people at one of the most difficult times Our HR department has expanded to include a team of eight in their lives and to create a responsible business that focuses regional and one head office Business Partners. The role is very on meeting the needs of our clients and delivering long-term much a consultative one, so the Partners provide guidance in success and value for all our stakeholders. areas such as recruitment, learning and development and improving business results. As a business, serving clients is at the heart of everything we do. Our values underpin our purpose and are recognised across the Across the organisation, the Board has looked carefully at people Group as the basis of our culture. support. We care deeply about the wellbeing of our people and continue to offer access to an Employee Assistance Programme. The Board sets the strategy for the Group to align with our This free and confidential advice service is available 24/7 and purpose. Our values and leadership behaviours are a vital part enables colleagues to discuss any issues that may be causing of our culture to ensure that through our conduct and decision- them concern, be they related to work, home life, or their making we do the right thing for the business and our physical and mental health. stakeholders.

The Board resolved to and successfully established an Employee The Board has overall responsibility for establishing the Forum to facilitate regular and constructive engagement Company’s purpose, values and strategy to deliver the long-term between colleagues and senior management, including the sustainable success of the Company and generate value for all Board. Hundreds applied for the opportunity to represent their our stakeholders. colleagues and business area through the Forum and the successful candidates were chosen following a staff vote. Ensuring effective decision-making The parameters within which decisions are taken across the The purpose of the Employee Forum is to share information on Group are ultimately directed by our core purpose, which is a broad range of topics, everything from business performance designed to drive alignment between why it exists, what it aims and operational initiatives to future strategy and vision. It also to achieve in the future, who it exists for, and how it generates creates a platform for relaying colleagues’ opinions and ideas, sustainable financial and non-financial value for its key helping to ensure that the business decisions we make are stakeholders. This is discussed further throughout the fully-informed with insight from all major stakeholders. Strategic Report.

Promoting an inclusive and diverse workforce The Board-agreed matters of purpose, vision and strategy are Dignity is dedicated to building a workforce which is not developed in isolation and are influenced by stakeholder representative of the communities we serve, in all aspects views, our sustainable business goals and our risk environment. of diversity. In turn, it is the combination of all of these matters that set the context and expectations in relation to decision-making Our inclusion and diversity policies seek to demonstrate our outcomes, attitudes and behaviours, forming the baseline for commitment to providing an inclusive, equal and fair working management accountability; and in combination with values, environment by: contribute to the overall cultural tone across the Group.

Purpose-led considerations

Purpose Vision Strategy

Culture Decision-making

Stakeholders CSR Risks V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 51

48 Dignity plc Annual Report & Accounts 2020 Chairman’s introduction to governance continued Governance

How we comply with the 2018 UK Corporate Governance Code Throughout the year, the Board has applied the Principles and complied with the majority of the Provisions of the 2018 UK Corporate Governance Code as set out below:

Principle How we apply the Principles Further information

1. Board leadership and company purpose

A. The Board’s role The Board is collectively responsible for the long-term success of the Company, including its See the Governance structure on page relationships and engagement with all shareholders, and operates via a formal schedule of 50 for further information and details A successful company is led by an effective matters reserved for its decision. of the responsibilities of the Board. and entrepreneurial Board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

B. Setting purpose, values The schedule of matters reserved for the Board provide that the Board is responsible for See the Executive Chairman’s review for and strategy the overall leadership of the Group and setting its values and standards and for approving further information. the Group’s strategic aims and objectives. The Board should establish the company’s purpose, values and strategy, and satisfy In addition, the establishment of the Employee Forum is a key element in the Board’s itself that these and its culture are aligned. oversight of culture. Our Code of Conduct also defines the behaviours we expect of our All directors must act with integrity, lead by people and the ethical standards to which we adhere. example and promote the desired culture.

C. Risk management The Group has mature risk management and governance processes in place to identify, See pages 45 to 50 for further report and manage risk. The Audit Committee is provided with a twice yearly review of the information on the Governance The Board should ensure that the principal risks, including emerging risks, together with updates from Internal Audit on structure and pages 27 to 32 for necessary resources are in place for matters for review. our Principal and Emerging risks. the company to meet its objectives and measure performance against them. The Board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.

D. Stakeholder engagement The Board reviews and oversees relationships with the business’s key stakeholders. See the Governance section on pages At each meeting, the Board, inter alia, receives (i) a report on the performance and 45 to 50 for further details and In order for the company to meet its workforce engagement pages 38 and 39. responsibilities to shareholders and operational issues of each business division (ii) an update from the Chairman on investor stakeholders, the Board should ensure relations, (iii) supplier management and (iv) in 2020, an update on matters relating to the effective engagement with, and encourage CMAs market investigation and the FCA’s activities in respect of pre-need regulation. The participation from, these parties. Board committees also address such matters as the performance development framework and whistleblowing. Workforce engagement is achieved as described on page 39.

E. Workforce policies The Board firmly believes that good ethics and good business combine to produce the See our website at best results in the long-term. We take our responsibility and reputation as a good corporate www.dignityplc.co.uk. The Board should ensure that workforce citizen very seriously and we are committed to ethical business practices which reflect and policies and practices are consistent with enhance our core values of quality, integrity, courtesy and respect. Our Code of Conduct the company’s values and support its long- sets out our policy on the standards to be followed to promote legal, honest, ethical and term sustainable success. The workforce safe business practices. There are Group policies that define our approach to managing should be able to raise any matters health, safety, environmental and social matters affecting our employees. In addition, there of concern. is also an independent and anonymous whistleblowing procedure allowing any employee to confidentially raise any concerns.

2. Division of responsibilities

F. Chair leadership The Chairman, in conjunction with the Company Secretary, ensures that quality information See our Governance section on page is provided to the Board in advance of each Board meeting. The performance of the 50 for further information. The Chair leads the Board and is responsible Chairman is monitored through the annual Board evaluation process and through separate Full Code compliance impacted by for its overall effectiveness in directing the meetings of the Non-Executive Directors without the Chairman present. company. They should demonstrate Board roles and composition. objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the Chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.

G. Balance of the Board The Board currently comprises the Executive Chairman and the Interim Chief Financial See the Governance structure and how Officer (both of whom were independent on appointment), the Executive Director of the Board functions on pages 53 and 54 The Board should include an appropriate Funeral Operations, two independent Non-Executive Directors and a Non-Executive for further information. combination of executive and non-executive Director who, as a representative of the Company’s major shareholder, is not independent. (and in particular, independent non- Full Code compliance impacted by executive) directors, such that no one When a new Chief Executive is appointed, the roles of the Chairman and Chief Executive Board roles and composition. individual or small group of individuals will, once again, be separate with distinct accountabilities as set out in their role profiles. dominates the Board’s decision-making. The Chief Executive will be responsible for the day-to-day leadership and management There should be a clear division of of the business through defined delegated authority limits. The Non-Executive Directors responsibilities between the leadership provide an independent view on the running of our business, governance and boardroom of the Board and the executive leadership best practice. They oversee and constructively challenge management in its of the company’s business. implementation of strategy and performance of the Group.

H. NED’s role and time The annual Board evaluation process assesses the performance and effectiveness commitment of Directors and their commitment to meet their board responsibilities. In addition, prior to taking up a Non-Executive Director position, the Board considers whether the Non-executive directors should have Non-Executive Director has sufficient time to devote to their role with the Group and sufficient time to meet their board in light of any changes to a Non-Executive Director’s external commitments during the year. responsibilities. They should provide At the Nomination Committee meeting in December 2020, each of the Non-Executive constructive challenge, strategic guidance, Directors confirmed that they were able to devote sufficient time to their role as a Director offer specialist advice and hold of Dignity plc. This confirmation is sought annually. management to account.

I. The Company Secretary All Directors have access to the advice and services of the Company Secretary. The Board, supported by the Company The Company Secretary ensures that the Board receive papers of a high-quality in a Secretary, should ensure that it has the timely manner. He advises the Board on all governance matters, including compliance policies, processes, information, time and with the Code. He works with the Chairman and Committee Chairs to ensure that the resources it needs in order to function right matters are escalated to the Board and Committees at the appropriate time and effectively and efficiently. that sufficient time is devoted to strategic matters. He arranges Directors’ induction and Board evaluation exercises and supports succession planning and recruitment of new Non-Executive Directors. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 52

Dignity plc Annual Report & Accounts 2020 49

Principle How we apply the Principles Further information

3. Composition, succession and evaluation

J. Board appointments There are regular succession reviews at the Nomination Committee, the Operating Board and at business level. In 2021, a key priority is for the Nomination Committee to Appointments to the Board should be have more direct interaction with employees which can be more valuable in building subject to a formal, rigorous and transparent understanding of talent issues than consideration of metrics. To achieve this a programme procedure, and an effective succession plan for individuals to present/contribute at meetings of the Board/Committees, where should be maintained for Board and senior appropriate, is being developed. management. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.

K. Skills, experience and knowledge The Nomination Committee reviews the balance, composition and structure of the Board, as well as the length of service of each Board member and where considered appropriate The Board and its committees should have recommends the re-appointment of the Non-Executive Director and any extensions to a combination of skills, experience and their term. knowledge. Consideration should be given to the length of service of the Board as a whole and membership regularly refreshed.

L. Board evaluations In line with the requirement of the Code, the Board conducts an annual evaluation of the See the Board appraisal on page 54 performance of the Board and Committees and each Director. The last evaluation was and the Committee Reports. Annual evaluation of the Board should conducted prior to the Board changes announced in December 2020. These evaluations consider its composition, diversity and how are externally facilitated annually. effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively.

4. Audit, risk and internal control

M. Financial reporting integrity The Board delegates detailed oversight of the Group’s system of internal controls to the See our Governance section on page Audit Committee, to ensure the integrity of the Group’s full year and half year results and 55 for further information. The Board should establish formal and the Annual Report and Accounts. The Audit Committee ensured it complies with this See the Audit Committee report on transparent policies and procedures to requirement as detailed on pages 58 to 61. ensure the independence and effectiveness pages 58 to 61. of internal and external audit functions and On the recommendation of the Audit Committee, the Board reviewed and approved the satisfy itself on the integrity of financial and 2020 half year and full year results and the 2020 Annual Report. In addition, the Board evaluation process confirmed that the Group’s system of internal controls had operated narrative statements. effectively during the year.

N. Fair, balanced and As described in the Audit Committee Report on page 59, the Audit Committee reviewed Please see the Financial review understandable assessment the 2020 Annual Report and Accounts in March 2021 and was satisfied that it presents section on pages 22 to 26 for further a fair, balanced and understandable assessment of the Group’s position and prospects. information. The Board should present a fair, balanced The Audit Committee reported its findings to the Board. and understandable assessment of the company’s position and prospects.

O. Risk management and The Audit Committee monitors the Group’s risk management and internal control Please see the section on Principal risks internal control framework systems on behalf of the Board. The Committee reviews the Group’s principal risks and and uncertainties on pages 27 to 32. recommends any changes to risk appetite to the Board. The Group Risk Register is The Board should establish procedures to reviewed twice yearly by the Audit Committee. manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long- term strategic objectives.

5. Remuneration

P. Supporting strategy and long- The Remuneration Committee reviews and proposes the Group’s remuneration policy to Please see the Remuneration term sustainable success the Board for approval and the Directors’ remuneration report is put to an advisory vote Committee report on pages 63 to 80. at the AGM, in line with statutory requirements. In accordance with section 439A of the Remuneration policies and practices Companies Act 2006, a new three year Remuneration Policy will be put to a binding vote should be designed to support strategy and at the 2022 AGM. promote long-term sustainable success. Executive remuneration should be aligned to company purpose and values, and be clearly linked to the successful delivery of the company’s long-term strategy.

Q. Remuneration Policy In accordance with its terms of reference, the Remuneration Committee reviewed the The Remuneration Policy can be current Remuneration Policy (2019 to 2021) and confirmed that it remains fit for purpose. found on pages 65 to 68 within the A formal and transparent procedure for A new three year Remuneration Policy will be put to a binding vote at the 2022 AGM. Remuneration report. The terms developing policy on Executive remuneration of reference for the Remuneration and determining director and senior The remuneration of Non-Executive Directors is a matter for the Board. No Director, committee attendee, Executive, senior manager or other person can be involved in any Committee can be found on our management remuneration should be website at www.dignityplc.co.uk. established. No director should be involved discussion or decision as to their own remuneration. in deciding their own remuneration outcome.

R. Independence of remuneration The Committee takes advice from an external consultant and ensures that remuneration outcome decisions for Board and senior management is suitably structured so as to attract, retain and motivate Executives, and to link reward to corporate and individual performance and all relevant Directors should exercise independent internal and external factors. judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 53

50 Dignity plc Annual Report & Accounts 2020 Governance structure Governance

The Board provides strategic leadership to the Group within a framework of sound corporate governance and internal control.

The Dignity plc Board (Chairman, Executive Directors and Independent Non–Executive Directors)

Board Level Committees

Audit Committee Remuneration Committee Nomination Committee (Independent Non–Executive Directors) (Independent Non–Executive Directors) (Chairman and Independent Non–Executive Directors)

The Operating Board

The Board The Chairman The Board is responsible for the long-term success of the The Chairman is responsible for: Group which includes: • The leadership of the Board; • Overall management of the Group; • Ensuring the Board functions effectively in all aspects of its role; • Setting and reviewing the strategy of the Group; • Facilitating the effective contribution of the Non-Executive Directors • Approval of major capital expenditure and acquisition projects, and and ensuring a constructive working relationship between Executive consideration of significant financial matters; and Non-Executive Directors; • Monitoring the exposure to key business risks; • Making sure all Directors receive accurate, timely and clear information; • Approval of major financing and capital structure changes • Setting the agenda so all strategic and other important issues are to the Group; discussed, ensuring sufficient time is devoted to discussing such • Setting annual budgets and reviewing progress towards issues; and achievement of these budgets; and • Making sure there is effective communication with stakeholders and • Proposing dividend payments to shareholders. acting as the public face of the Group.

The role of the Executive Chairman in 2020 Non-Executive Directors Following the departure in April 2020 of our former Chief Executive, The Non-Executive Directors scrutinise, measure and review the Mike McCollum, Clive Whiley took on temporarily, the role of performance of management; constructively challenge and assist in Executive Chairman. In this role, Clive has the responsibilities of both the development of strategy; review the Group’s financial information Chairman and Chief Executive. The Company is searching for a new and monitor the effectiveness of internal risk management systems. Chief Executive and, on appointment, Clive will return to the position of independent Non-Executive Chairman.

Committees of the Board The Chief Executive and Executive Directors There are three standing committees of the Board: the Audit The Chief Executive and Executive Directors together with the Committee; the Remuneration Committee and the Nomination Operating Board are responsible for: Committee. The Terms of Reference of these Committees are set • Operational management and control of the Group on a day-to-day by the Board and are available on the Dignity plc corporate website. basis. Local operational decisions are the responsibility of the local Membership is reserved for the independent Non-Executive Directors managers, who are accountable to the Chief Executive and the save for the Nomination Committee which is chaired by the Chairman. Executive Directors; The Board Committee Reports are on pages 58 to 80. • Formulating and proposing strategy to the Board; and • Implementing the strategy and policies adopted by the Board.

Commentary on the Board in 2020 As detailed on page 6 the structure of the Board is currently going through a period of change. As a result, the Company has not been The Operating Board compliant throughout the year with the following Code Provisions: The Operating Board currently consists of the following Executive • 9. The roles of chair and chief executive should not be exercised Directors and Senior Managers: by the same individual. • Executive Chairman: Clive Whiley; • 11. Which requires at least half of the Board excluding the chair, • Executive Director of Funeral Operations: Andrew Judd; to be directors considered by the board to be independent. • 12. The board should appoint one of the independent directors • Interim Chief Financial Officer: Dean Moore; to be the senior independent director. • Crematoria Director: Steve Gant; • 17. The Nomination Committee should comprise a majority • Marketing Director: Mark Hull; of independent non-executive directors. • Business Development Director: Alan Lathbury; and • 24. The Audit Committee should comprise independent non- executive directors. • Director of Pre Arrangement: Paul Toghill. • 32. The Remuneration Committee should comprise independent The Operating Board is responsible for determining and setting the non-executive directors. detailed day-to-day tasks required to implement the strategy set by The objective is to return to compliance with the relevant the Board. requirements of the current UK Corporate Governance Code. At the current time and, in addition to the Executive Chairman, the Board comprises two Executive and three Non-Executive Directors, two of whom, Gillian Kent and Paul Humphreys are independent. James Wilson is a Non-Executive Director but, as a partner in Phoenix Asset Management Partners, is not independent. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 54

Dignity plc Annual Report & Accounts 2020 51 Board of Directors

The Board is collectively responsible for the success of the Group.

Clive Whiley N Gillian Kent A N R Our Board members provide a strong Executive Chairman Independent Non-Executive Director Appointed to the Board: 2019 Appointed to the Board: 2020 and complementary mix of skills and experience. Together they are Background and experience: Background and experience: committed to building the long-term Clive has over thirty five years’ experience in Gillian has had a broad executive career success of the Group. regulated strategic management positions since including being Chief Executive of real estate becoming a Member of the London Stock portal, Propertyfinder, until its acquisition by Exchange. He has extensive main board Zoopla, and 15 years with Microsoft including Clive Whiley executive director experience across a broad three years as Managing Director of MSN UK. Executive Chairman range of financial services, engineering, Gillian holds non-executive director roles at manufacturing, distribution, retail and leisure Mothercare plc where she is Chair of the businesses encompassing the UK, Europe, Remuneration Committee, SIG plc, NAHL North America, Australasia, the Middle East and Group plc, Ascential Plc, and at three private China. He is Chairman of Mothercare plc, China companies, Howsy Limited (formerly No Agent Board composition, balance Venture Capital Management Limited, First Technologies Limited), Theo Topco Limited and tenure China Venture Capital Limited and Y-LEE Limited. (which trades as Key Group) and Portswigger The Board comprises five Directors and the Limited. Formerly she was a non-executive director at Pendragon Plc and Coull Limited. Executive Chairman. There are currently two Dean Moore A N R independent Non-Executive Directors and Interim Chief Financial Officer Gillian is Chair of the Remuneration Committee two Executive Directors. James Wilson is a Appointed to the Board: 2020 and also serves on the Audit and Nomination Non-Executive Director but, as a partner in Committees. Phoenix Asset Management Partners, is not independent. Background and experience: Dean is a chartered accountant with extensive James Wilson N public company experience having previously Non-Executive Director Executive and Non-Executive been Chief Financial Officer at Cineworld plc, Appointed to the Board: 2019 N Brown Group plc, T&S Stores plc and Non-Executive Tenure Graham Group plc and formerly non-executive Directors Chairman of Tuxedo Money Solutions Limited. Background and experience: He is currently an independent non-executive James joined the Board as a Non-Executive Director on 1 May 2019. James is a partner at 3 director and Chairman of the Audit Committee at Cineworld plc and Audit Committee Phoenix Asset Management Partners Limited 3 and manages The Huginn Fund. 3 Chairman and Senior Independent Director of Volex plc. James joined Phoenix in 2013. Prior to this, 1 James spent three years at Aviva Investors in Dean, who was an independent Non-Executive the Pan-European equity team. James holds Director before stepping into the role of Interim Executive Directors: 3 0 – 3 years: 3 a masters degree in Civil Engineering from Chief Financial Officer, remains a member of Non-Executive Directors: 3 the University of Durham and is a Chartered the three Board Committees, as the fees he Executive Chairman: 1 Financial Analyst. receives, whilst increased, remain fixed and he does not participate in any incentive plans. Paul Humphreys A N R Independent Non-Executive Director Key to Committee membership Andrew Judd Executive Director of Funeral Operations Appointed to the Board: 2021 A Audit Committee Appointed to the Board: 2020 N Nomination Committee Background and experience: Paul is Chair of the Audit Committee and a R Remuneration Committee Background and experience: member of the Remuneration and Nomination Green background denotes Andrew joined what is now Dignity in 1996. Committees. Committee Chair. He is responsible for all aspects of the Group’s He has had a broad executive career spanning day-to-day provision of funeral services through both quoted and unquoted companies, a national network of employees, funeral including having been Group Finance Director locations and associated facilities. of Care UK for more than 12 years, including Andrew has progressed through a variety of eight years whilst listed on the International roles within both the Co-operative Group and Stock Exchange. independent sectors. He holds a degree from Paul currently holds advisory roles at a small Wolverhampton University in Economics and number of unlisted companies. Business and holds additional professional qualifications in both Funeral Service Management and Funeral Directing. He has held Tim George office in the British Institute of Funeral Directors Company Secretary and various positions within the National Association of Funeral Directors most recently Tim was appointed Company Secretary in Past President of the Western Counties Area December 2018 and is a Fellow of the Institute Federation and Committee for Professional of Chartered Secretaries & Administrators. Standards. In 2018 Andrew was the driving force behind the establishment of the Funeral Service Links Consumer Standards Review (FSCSR) creating for the first time in the sector an independently- The Board records its thanks to Mike See Audit Committee report: chaired project that brings together the skills McCollum, Jane Ashcroft, David Blackwood, p.58 to p.61 and knowledge of industry experts and key Richard Portman and Steve Whittern all of See Nomination Committee report: stakeholders with a view to improving quality, whom stood down from the Board in 2020. p.62 standards and outcomes for funeral service Each made an outstanding contribution See Report on Directors’ remuneration: consumers. to the Dignity Group collectively over a p.63 to p.80 substantial number of years. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 55

52 Dignity plc Annual Report & Accounts 2020 Operating Board Governance

The Operating Board consists of the Executive Directors and Senior Managers.

The role of the Operating Board Clive Whiley Andrew Judd Dean Moore Executive Chairman Interim Chief Financial Officer Executive Director of Funeral The Operating Board is responsible Operations for determining and setting the Full biography on page 51 Full biography on page 51 Full biography on page 51

detailed day-to-day tasks required to implement the strategy set by the Board. Steve Gant Mark Hull Crematoria Director Marketing Director

Steve joined what is now Dignity in 1988. His key Mark joined Dignity in 2013 as Head of area of responsibility is The Crematorium and Marketing for funeral plans and has since The Senior Leadership Team Memorial Group. He began his career in the progressed and established the marketing crematoria industry in 1983 and assumed function for the Group, which he now leads. The Senior Leadership Team are the Senior management of the Crematoria division in 2003. Responsibilities cover Brand, Promotion, Managers across all areas of the business. Steve currently sits on the Executive for the Digital Marketing and Experience, Proposition They are responsible for the day-to-day Federation of Burial and Cremation Authorities and Communications. running of the business and report to the and is part of the National Cremation Working Operating Board. Mark is a Chartered Marketer and Member Group for the Ministry of Justice, and the of the Chartered Institute of Marketing and is Scottish Government Working Group consulting also a Chartered Manager and Fellow of the on the revision and update of the Cremation Chartered Management Institute. He holds Acts. He holds a Post Graduate Executive a Marketing degree from the University of Diploma in Strategic Leadership from the Hertfordshire, a postgraduate diploma in Warwick Business School. Marketing from London Guildhall and an MBA from Cranfield University. The depth of experience, knowledge Alan Lathbury and complementary skills in our Business Development Director Paul Toghill Operating Board and Senior Director of Pre Arrangement Leadership Team, strengthens our Alan joined what is now Dignity in 1999. ability to deliver on our strategic He is a Fellow of the Chartered Institute of Paul joined Dignity in 2006. His key area of objectives and vision. Management Accountants and holds an MBA responsibility is the running of Dignity Pre in Business and Finance. His principle areas Arrangement, which includes Proposition, of responsibility are Business Development Distribution, Marketing and Operations. Clive Whiley of Crematoria, through acquisition of existing Executive Chairman crematoria, building of new greenfield location Paul has worked in the life insurance and pre- crematoria and through partnerships with local arranged funeral plan markets for over 25 years, authorities to manage existing bereavement with a particular focus on funeral propositions, services. Currently Alan is managing the distribution and the strategic development of Company’s response to the Competition affinity partnerships including within FCA and Market Authority’s investigation into regulated markets. the funeral industry. Paul is a Member of the Institute of Direct and Digital Marketing, and holds the Diploma in Interactive and Direct Marketing. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 56

Dignity plc Annual Report & Accounts 2020 53 Directors’ statement on corporate governance

How the Board Functions The Group is controlled through the Board of Directors that meets regularly throughout the year. The structure of the Board, together with explanations of responsibilities, is shown on page 50. Informal meetings are held between individual Directors as required.

The day-to-day management of the Group is delegated to the Executive Directors and the wider Operating Board (see page 52) supported by an experienced and generally long serving senior and middle management team, the size and structure of which is commensurate with the complexity of the Group’s activities. Managers have the necessary skills and knowledge relevant to their areas of responsibility. The remainder of the responsibilities rest with the Board however, certain capital expenditures and acquisition projects are delegated under a formally adopted Schedule of Matters Reserved for the Board and Expenditure Authorisation Policy.

All Directors are provided with the necessary papers in advance of the meetings to permit them to make informed decisions at those meetings. The Board also considers employee issues and key management appointments, including the role of Company Secretary.

The Board now comprises five Directors and the Executive Chairman. During the period the total number of directors who served was ten. Mike McCollum, former Chief Executive, retired from the Board on 3 April 2020 as did Jane Ashcroft, former independent Non-Executive Director. David Blackwood, former Senior Independent Director retired from the Board on 11 June 2020 and Gillian Kent was appointed as an independent Non-Executive Director and Chair of the Remuneration Committee on the same date. Richard Portman and Steve Whittern stood down from the Board on 14 December 2020. Subsequent to the period end, on 23 February 2021 Paul Humphreys was appointed to the Board as an independent Non-Executive Director.

There are currently two independent Non-Executive Directors, a Non-Executive Director who is not independent, and three Executive Directors, including the Executive Chairman.

The Board considers that three Executive Directors, supported by the wider Operating Board, details of which are on page 52, are sufficient to manage a Group of this size, complexity and organisational structure.

Biographical details for the serving Non-Executive Directors appear on page 51. Their role is to challenge constructively the management of the Group and to assist in the development of strategy. The Non-Executive Directors are chosen for their diversity of skills and experience. Each Non-Executive Director is appointed for a fixed term of up to two years, subject to annual re-election by shareholders. This term may then be renewed by mutual consent up to a maximum of nine years in accordance with the Code. Appointments beyond six years are also subject to rigorous review prior to approval. The Non-Executive letters of appointment are available, upon request, from the Company Secretary.

The Chairman and the Non-Executive Directors are required to, and have, confirmed formally to the Board that, mindful of their other commitments they have, and will have, sufficient time to devote to their responsibilities as Directors of the Company.

Gillian Kent and Paul Humphreys are independent of management as defined by the Code.

Clive Whiley was appointed Executive Chairman of the Company when Mike McCollum stood down from the Board on 3 April 2020 and Dean Moore became Interim Chief Financial Officer on 14 December 2020 following Steve Whittern’s departure. These interim positions mean that Clive Whiley and Dean Moore do not currently qualify as independent as defined in the July 2018 UK Corporate Governance Code.

All Directors are able to take independent professional advice on the furtherance of their duties as necessary at the Group’s expense. They also have access to the advice and services of the Company Secretary and, where it is considered appropriate and necessary, training is made available to Directors. All Directors receive annual training and updates on the duties and responsibilities of being a Director of a listed company. This covers legal, accounting, security and tax matters as required or as requested by any Director. In addition, any newly appointed Director receives appropriate induction training.

The Company maintains appropriate insurance cover in respect of any legal action against its Directors. The level of cover is currently £90 million.

The Directors have, during the period, formally reminded themselves of their duties as Directors under the Companies Act 2006 (Section 171-177). These duties include the need to avoid conflicts of interest (Section 175). No such conflicts of interest exist.

In accordance with the Code, all Directors will submit themselves for election or re-election as appropriate at the 2021 Annual General Meeting.

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54 Dignity plc Annual Report & Accounts 2020 Directors’ statement on corporate governance continued Governance

Board Appraisal In accordance with the requirements of the Code, a formal evaluation of the Board, its Committees, the Chair and individual directors was undertaken in 2020. The evaluation was undertaken prior to Richard Portman and Steve Whittern standing down. The evaluation was conducted by Lintstock a corporate advisory firm, entirely independent of the Group. This evaluation is undertaken annually by Lintstock and will continue annually. This meets the requirements of the Code.

The evaluation was managed by way of the issue of detailed online questionnaires to all Directors. This was followed by a detailed review by Lintstock and the Board of the responses and the identification of any actions arising.

Specific matters reviewed by the Board were:

• Response of the organisation to COVID-19; • Board composition; • Stakeholder oversight; • Strategic oversight; • Board dynamics; • Board support; • Focus of meetings; • Risk Management and internal control; • Succession planning and human resource management; and • Priorities for change.

Issues arising from the evaluation are reviewed and addressed.

The Non-Executive Directors are responsible for the performance evaluation of the Chairman taking into account the views of the other Executive Directors. The Board was satisfied that its performance and that of its Chairman, individual Directors and Committees was of the appropriate standard.

Board and Board Committee Attendance Those attending and the frequency of Board and Committee meetings held during the period was as follows:

Audit Remuneration Nomination Main Board(i) Committee Committee(ii) Committee

Number of meetings 9 3 4 4 Jane Ashcroft 2 1 2 – David Blackwood 4 1 2 3 Mike McCollum 2 1(iii) 2(iii) 1(iii) Richard Portman 8 2(iii) – 1(iii) Clive Whiley 9 3(iii) 5(iii) 4 Steve Whittern 8 2(iii) – 1(iii) James Wilson 8 2(iii) 1(iii) 4 Dean Moore 7(iv) 3 4 3 Gillian Kent 4(iv) 2 3 1 Andrew Judd(iv) – – – –

(i) Only scheduled Board meetings, of which there were nine in the period, have been included in the attendance analysis. A further seven meetings were held to consider announcements, documents or the issue of shares pursuant to share awards. (ii) The scheduled meetings of the remuneration committee of which there were three in the period, have been included in the attendance analysis. A further meeting was held in the period to discuss, amongst other matters, LTIP vesting and awards. (iii) In attendance by invitation of the respective Committee. (iv) Dean Moore was appointed to the Board on 11 March 2020, Gillian Kent on 11 June 2020 and Andrew Judd on 14 December 2020.

The Board had nine full Board meetings spread broadly equally across the year. The Board considers that nine is the appropriate number required to exercise effective governance and control although this is kept under review. Further meetings are arranged as required.

If Directors are unable to attend a meeting, they are advised of the matters to be discussed and given an opportunity to make their views known to the Chairman prior to the meeting. Such views will be included in the minutes of the meeting if necessary.

The Chairman and the Non-Executive Directors met during 2020 without the Executive Directors present. The Non-Executive Directors also met during 2020 without the Chairman present. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 58

Dignity plc Annual Report & Accounts 2020 55

The Company Secretary The Company Secretary, Tim George, is responsible for overseeing the preparation and distribution of all agendas, minutes and related Board and Committee papers. He attends the Board meetings in his capacity as Company Secretary and provides corporate governance advice if required.

The appointment and removal of the Company Secretary is a matter for the Board as a whole.

Internal Control and Risk Management The Board has responsibility for the Group’s system of internal control and risk management, which is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss. A formal and ongoing process of identifying, evaluating and managing the significant risks faced by the Group was in place throughout the period and in place up to the date the Corporate Governance Report was signed and approved for the Annual Report and Accounts 2020.

The Executive Directors and the wider management group are responsible for designing, implementing, maintaining and evaluating the necessary systems of internal controls. Such controls are reviewed on an ongoing basis and formally reviewed on an annual basis in accordance with the requirements of the Code. This annual review confirmed that the Group’s risk management and internal control systems were appropriate and suitable for a Group of this size and complexity.

Internal Audit completes a programme of work each year that provides assurance that the internal controls have been operated as designed and also proposes improvements where appropriate and necessary. Coupled with this, the formal six- monthly review of the Risk Register provides a further mechanism for considering and reviewing internal controls. All such work is reported to and monitored by the Audit Committee which recommends approval to the full Board. Please also see the Audit Committee Report on pages 58 to 61.

The Audit Committee on behalf of the Board, as part of an ongoing process, formally reviews and continues to keep under review the effectiveness of the Group’s systems of internal control, including financial, operational and compliance controls and risk management systems. The Audit Committee also formally reviews risk management annually and receives reports from management and Internal Audit regarding any weaknesses in internal control, any losses arising out of weaknesses in internal control and progress in implementing revised procedures to improve and enhance internal control. It also identifies the significant controls upon which reliance will be placed. Any significant control weaknesses would be reported to the full Board at the next meeting. There have been no reports of weaknesses that have resulted or would have resulted in a material misstatement or loss in the period, nor in the period up to the date this Annual Report was published.

The key procedures, which operated throughout the period, are as follows:

• Financial Reporting – The Group has a comprehensive system of internal budgeting and forecasting. The Group’s monthly actual results analysed by operating division are reported to the Board and significant variances to budget are investigated with revised forecasts prepared as necessary; • Financial Controls – The Executive Directors have defined appropriate and necessary financial controls and procedures to be employed by operational management. Key controls over major business risks include reviews against budgets and forecasts, review against key performance indicators and exception reporting; • Quality and Integrity of Personnel – One of the Group’s core values is integrity. This is regarded as vital to the maintenance of the Group’s system of internal financial control. The Directors have put in place an organisation structure appropriate to the size and complexity of the Group with defined lines of responsibility and delegation of authority where the Board considers it necessary and appropriate. There is also a Code of Conduct applicable to all employees of the Group as well as specific policies such as Anti Bribery and Corruption, Slavery and Human Trafficking, Anti-Tax Evasion and Anti-Money Laundering; • Internal Audit – The Group has a dedicated Internal Audit team, which reports to the Interim Chief Financial Officer, Executive Chairman and the Audit Committee. The latter reviews and approves the annual work plan of the Internal Audit function which tests the design and operating effectiveness of key controls across the business. Any significant weaknesses are reported to management and the Audit Committee on a timely basis. It also coordinates the completion of self-assessment reports by operational management that assists in highlighting areas of control weakness or exposure. Internal audit reviews are completed on such areas together with selected areas of the head office function and any area where an Executive Director requests a review; During 2020 (as in previous years), there were quarterly meetings between the Head of Internal Audit and the Executive Directors to formally review and discuss Internal Audit’s work programme and findings. In addition, regular meetings between the Head of Internal Audit and the external auditors, Ernst & Young LLP (‘EY’), were held during the year to discuss and plan audit work and to ensure a complementary approach. The Head of Internal Audit formally reports to the Audit Committee at every meeting and also held private meetings with the Chair of the Audit Committee during 2020 and the Audit Committee members in December 2020; • Procedures – The Group has established and documented processes and procedures covering most parts of its operations, both client facing and in support departments. These provide clear guidance on the correct or most appropriate course of action in various circumstances. Procedures are supplemented by training where needs have been identified. Both Internal Audit and the comprehensive management structure monitor the adherence to such processes and procedures; and V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 59

56 Dignity plc Annual Report & Accounts 2020 Directors’ statement on corporate governance continued Governance

• Risk assessment – The Executive Directors and the Operating Board have responsibility for the identification and evaluation of significant risks that might arise in their areas of responsibility, together with the design of suitable internal controls. This was in place throughout the accounting period and at the date of approval of the Annual Report. They also regularly assess the risks facing the Group. A Risk Register is maintained which is presented to and reviewed by the Audit Committee twice a year and then formally adopted by the Board of Dignity plc. Risks and any changes to those risks are discussed at every Board meeting. The principal risks and uncertainties facing the Group, which are documented in the Risk Register, are discussed on pages 27 to 32 of the Annual Report. These risks have also been formally considered when the Directors prepared their Viability Statement on page 33 of this Annual Report in accordance with provision 31 of the Code.

These procedures are designed to, amongst other things, help to provide assurance regarding the process of preparing consolidated financial statements and the financial reporting system.

An explanation of how the Group aims to create and preserve value and the strategy for delivering its objectives is included in the Operating Review on pages 18 to 21.

Relationship with Shareholders The Group recognises the importance of good communication with shareholders.

Regular contact with institutional investors, fund managers and analysts is undertaken by the Executive Chairman and the Interim Chief Financial Officer to discuss information made public by the Group. The Board receives reports of these meetings and any significant issues raised are discussed by the Board. The Non-Executive Directors are also available to meet separately with shareholders if necessary, to discuss any issues that they may have. The Executive Chairman is also available to discuss governance and strategy matters with the major shareholders. The Company Secretary deals with queries or enquiries from private shareholders. The Board is interested in the views and concerns of all shareholders whether private, institutional or corporate.

The AGM provides an opportunity to meet the Board and the Operating Board. All shareholders are free to attend and put questions to any Director and the Chair of each of the Board Committees at the AGM on 23 June 2021. At least 20 days’ notice will be given ahead of that meeting. Questions asked in person at the AGM will receive a verbal response whenever possible, otherwise a written response will be provided as soon as practicable after the AGM. Questions raised at any other time will normally receive a written response. Shareholders attending the AGM will also have the opportunity to meet informally with all the Directors and the Operating Board after the meeting has concluded subject to social distancing measures.

On 11 June 2020, the Company announced that at the Annual General Meeting held earlier that day more than 20 per cent of the votes cast on Resolution 15 (“To authorise the Board to make political donations or incur political expenditure”) were against the resolution.

As stated in the AGM Notice and in common with many companies, it is not the Company's policy to make donations to political parties, or to make other political donations within the normal meaning of that expression, and the Directors have no intention of changing that policy. The purpose of Resolution 11 was to avoid the inadvertent infringement of provisions within the Companies Act 2006.

Following discussions with one of our major shareholders which has a general policy not to support this resolution, we believe this shareholder now has a better understanding of the purpose behind the resolution.

The Directors consider that this Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model, risks and strategy. In order to assess whether the Annual Report and Accounts were fair, balanced and understandable, the Board received an early draft to enable time for review and comment. The Audit Committee then met to consider the criteria for a fair, balanced and understandable Annual Report and to review the process underpinning the compilation and assurance of the report, in relation to financial and non-financial management information. At that meeting they considered the Annual Report and Accounts as a whole and discussed the tone, balance and language of the document, being mindful of the UK reporting requirements and consistency between narrative sections and the financial statements. As part of this process the Board considered the Group’s reporting governance framework and the views of the external auditor as reported to the Audit Committee. Pages 58 to 61 provide an assessment of the Group’s affairs.

The Annual Report and Accounts is made available to all shareholders at least 20 working days before the AGM. Registered shareholders receive a Notice of Meeting and Form of Proxy, the latter document allowing a shareholder to vote in favour, or against or indicate a vote withheld on each separate resolution tabled at the AGM. Particulars of aggregate proxies lodged are also announced to the London Stock Exchange (‘LSE’) and placed on the Group’s investor website, www.dignityplc.co.uk, as soon as practicable after the conclusion of the AGM.

The Interim Report is no longer published as a paper document but is available on the Group’s investor website upon which users can also access the latest financial and corporate news. All information reported to the market via regulatory information services also appears as soon as practicable on that website.

The Group is happy to arrange visits to its funeral locations and crematoria, if requested by a shareholder, at a time suitable to all parties.

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Dignity plc Annual Report & Accounts 2020 57

Our approach to diversity The Board is committed to and takes responsibility for equality and diversity throughout the Dignity Group.

It is the policy of the Company that there shall be no discrimination or less favourable treatment of employees or job applicants in respect of age, race, religion or belief, gender, sex, sexual orientation, pregnancy, disability or marital status. The Company is fully committed to ensuring there is no unfair and unlawful discrimination in relation to employees, job applicants, clients, suppliers and members of the public. It is Company policy to engage, promote and train employees on the basis of their capabilities, qualifications and experience, without discrimination, and all employees will receive equal opportunity to progress within the Company.

In order to put this policy into practice in the day-to-day management and operations of the Company, we:

• Monitor decisions on recruitment, selection, training and promotion to ensure they are based solely on objective and job- related criteria; • Provide training for managers to ensure that they understand the nature of discrimination and are fully aware of their responsibilities in implementing our Equality and Diversity policy; • Provide awareness for employees to ensure that they have a greater understanding of equality and diversity in the workplace; • Provide information and advice on the implications of the relevant legislation and on assistance available to help in the employment of people with disabilities; • Ensure that all policies are applied thoroughly and fairly particularly those relating to any complaint involving discrimination or harassment; • Communicate this policy to employees, suppliers and third parties, where applicable, through induction, training and communications; and • Encourage our suppliers and third parties to adopt policies and working practices, which reflect our own views and values on equality and diversity and that of our clients.

All employees are also responsible for the promotion and advancement of this policy and the Group supports its implementation and communication through its Equality and Diversity Programme which covers a number of matters including induction, learning and development.

For further details on Employee diversity, see page 39 of the Corporate and social responsibility report.

Substantial shareholdings The Group has been formally notified (In accordance with Chapter 5 of the Disclosure and Transparency Rules) of the following interests of three per cent or more in the issued share capital of the Company:

As at 5 March 2021 As at 25 December 2020

Number of Percentage Number of Percentage Ordinary of issued Ordinary of issued Holder Shares share capital Shares share capital

Phoenix Asset Management Partners Limited 14,718,468 29.42 14,718,468 29.42 Granular Capital Limited 5,022,587 10.04 5,022,587 10.24 Artemis Investment Management LLP 4,955,451 9.91 4,955,451 9.91 John Stewart Jakes 3,669,612 7.34 3,669,612 7.34 Indian Creek B.V. 2,508,194 5.01 2,508,194 5.01 Klarus Capital Limited 2,497,569 4.99 2,497,569 4.99 Prudential plc group of companies 2,469,210 4.94 2,469,210 4.94 Pictet Asset Management Limited 2,394,069 4.79 2,394,069 4.79 Standard Life Aberdeen plc 1,841,495 3.68 1,841,495 3.68

It should be noted that these holdings may have changed since the Company was notified.

By order of the Board

Tim George Company Secretary

17 March 2021

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58 Dignity plc Annual Report & Accounts 2020 Audit Committee report Governance

The Audit Committee continues to monitor the integrity of financial statements, the effectiveness of risk management and internal controls and the implementation of new accounting standards.

Dear Shareholder, On behalf of the Board, I am pleased to present my first report Member Since Experience as the Chair of the Audit Committee (the ‘Committee’) since David Blackwood 2015 Previously CFO of Synthomer plc, my appointment to the Board and this Committee on (retired 11 June 2020) Chartered Accountant and Fellow of the Association of Corporate 23 February 2021. Treasurers.

I am a chartered accountant with extensive public company Jane Ashcroft 2012 Currently CEO of Anchor Hanover, (retired 3 April 2020) Fellow of the Institute of Chartered experience having been Group Finance Director of Care UK for Secretaries and Administrators more than 12 years and having spent almost ten years as Group and Member of the Chartered Finance Director at McLeod Russel Holdings Plc. I also have a first Institute of Personnel and class degree in Economics and Accounting from the University Development. of Leeds. Dean Moore 2020 Currently Chairman of the Audit Committees at Cineworld plc and In order properly to brief myself following my appointment, Volex plc. I held a number of calls with the Interim Chief Financial Officer, Gillan Kent 2020 Previously Managing Director of the Group Financial Controller, key members of the Operating MSN UK. Non-executive director Board and other senior management as well as with senior audit roles at Mothercare plc where Gillian is Chair of the Remuneration personnel from EY. In addition, I have read previous financial Committee, SIG plc, NAHL Group reports and Audit Committee documents and discussed any plc, Ascential Plc, and at three issues arising from these in the calls referred to above. I then private companies. chaired the Audit Committee meeting on 5 March 2021 to Paul Humphreys 2021 A broad executive career spanning consider all relevant matters as described herein. both quoted and unquoted companies, including having been Membership and Process Group Financial Director at Care UK. Currently holds advisory roles The following Directors served on the Audit Committee during at a small number of unlisted 2020: Dean Moore, Gillian Kent, David Blackwood and Jane companies. Ashcroft. Gillian is an independent Non-Executive Director, as Dean was until his appointment as Interim Chief Financial Officer on 14 December 2020. Gillian was appointed to the Committee Key Responsibilities on 11 June 2020. Jane and David were independent Non- The Committee works with the Board to fulfil its oversight Executive Directors but stood down as Directors on 3 April and responsibilities. Its primary functions are to: 11 June 2020 respectively. • Monitor the integrity of the financial statements and other The Board is satisfied that, as Chair of the Committee, I have information provided to shareholders and other stakeholders recent and relevant financial experience together with competence to ensure they represent a clear and accurate assessment of in accounting and auditing that can be appropriately and the Group’s position, performance, strategy and prospects; successfully applied at Dignity. In addition, the Committee is • Consider the financial statements and recommend to the satisfied that it has a broad range of experience across a number Board as to whether the Annual Report and Accounts, taken of sectors that are relevant to Dignity. The Company Secretary as a whole, are fair, balanced, understandable and provide acts as Secretary to the Committee. I report the Committee’s information necessary for shareholders and stakeholders to deliberations at the next Board meeting and the minutes of assess the performance, business model and strategy of the each meeting are made available to all members of the Board. Group, recognising the changes to the strategy of the business;

The Committee met three times during 2020; in March prior to • Review significant financial reporting issues and judgements the release of the 2019 Preliminary Announcement; in July prior contained in the financial statements; to the release of the 2020 Interim Announcement in August and • Review the systems of accounting, internal control and risk again in December 2020 immediately prior to the end of the management; financial period. The attendance records of the members are shown on page 54. All Committee members were present at all • Monitor and review the significant risks identified by the Group meetings. The external auditors, EY, the Executive Chairman, the as well as the management and mitigation of those risks; former Chief Executive, the former Finance Director, the former • Oversee and maintain an appropriate relationship with the Corporate Services Director, the Head of Internal Audit, the Group’s external auditors and review the effectiveness, Financial Controller and James Wilson, Non-Executive Director, independence and objectivity of the external audit process; have all attended meetings by invitation. • Monitor and review the effectiveness of the Internal Audit The Committee holds a private session with the audit team from function; approve the internal audit plan and review all internal our external auditors, EY, without management present at least audit reports; review and monitor management’s responses once a year. In addition, as Chair of the Audit Committee, Dean to the findings and recommendations of the Internal Audit had a discussion with the Lead Partner on two occasions plus function; maintain an effective relationship with the Head of additional interactions in the year which provide the opportunity Internal Audit; and for open communication and the free flow of any concerns • Monitor and review the arrangements by which employees can, relating both to the openness, transparency and general in confidence, raise concerns about any possible improprieties engagement of management with the audit process as well as in financial and other matters (such as compliance with the to understand EY’s assessment of key judgements as they arise. Bribery Act).

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Dignity plc Annual Report & Accounts 2020 59

The terms of reference of the Committee are available on • Pensions – the Committee examined the assumptions used in the Group’s corporate website at www.dignityplc.co.uk. the actuarial valuation for the defined benefit pension scheme considering the consistency of approach with the prior year and Activities in the period compliance with the requirements of IAS 19; The key activities of the Committee during the period and up • Leases – the Committee considered the disclosure provided to the date of this report were: in respect of the impact of IFRS 16 ‘Leases’ on accounting. See note 1 to the financial statements for further details; • Review and agreement of the 2020 Internal Audit Plan and budget; • Taxation including Corporate Interest Restriction (‘CIR’) – in light of the impact on the Group and the resultant need to record • At all meetings, the review of Internal Audit progress against the a prior period adjustment, the Committee considered the Internal Audit plan for the period, the results of principal audits consequences of consolidating the Trusts on the application and other significant findings, adequacy of management’s of the CIR rules and the associated charge to corporation tax in responses and the timeliness of the resolution of actions both the current and prior period, considering advice received arising; from the Group’s tax advisers; • Completion of a comprehensive review of Dignity’s risk control • Pre-need Trust accounting – valuation of Level-3 Trust assets – framework and its linkage to the Risk Register and Viability the Committee considered the basis of valuation of private Statement included in the Strategic Report on page 33; (illiquid) investment funds which are classified as Level-3 assets • A six-monthly review of the Group’s Principal Risks and for the purpose of fair value disclosures, including the adequacy recommendation of adoption by the Board. This is part of an of the disclosures made in the Financial Statements; ongoing process of identifying, evaluating and managing the • Risk – the Committee performed a comprehensive review significant risks faced by the Group. A review of the Risk of the principal risks and uncertainties disclosed in the 2020 Register was also completed in March 2020. The principal risks Annual Report based on the changing and competitive facing the Group are considered on pages 27 to 33 of this environment in which the Group operates; Annual Report; • Corporate Governance – the Committee reviewed the • In advance of the financial period end, the review with the Statement on Corporate Governance and the adequacy of the external auditors, EY, of the annual external audit plan, which explanation set out in respect of those provisions with which addressed the planned audit approach to key audit matters; the Company is currently not compliant; • Consideration of the external auditor’s views on key judgement • Section 172 Statement – as the first time of reporting, this was areas and audit findings relating to key accounting matters at reviewed by the Committee; the conclusion of the audit; • Alternative Performance Measures (‘APMs’) – as the Group’s • An assessment of the effectiveness of the external auditors; APMs are stated after adjustment for non-underlying items and • A comprehensive review of the 2019 and 2020 Annual Report to reverse the impact of consolidating the Trusts and applying and Accounts and the 2020 Interim Report. This review was to IFRS 15 and adopting IFRS 16, the Committee considered the ensure that the Committee was completely satisfied that the nature and quantum of the adjustments made in arriving at information was fair, balanced and understandable. As part of the APMs. The Committee also considered the disclosures this review the Committee received reports from the external provided with respect to the reconciliation of APMs to ensure auditors on their audit of that Annual Report and Accounts and they considered these to be clear to a user of the Financial their review of the interim results. The Committee also reviewed Statements; the Preliminary and Interim Announcements made to the • Going Concern and Viability – the Committee performed an London Stock Exchange; and assessment and ratification of the Going Concern and Viability • The formal review of the going concern assumptions adopted Statements, including giving due consideration to severe but in the preparation of the 2019 and 2020 financial statements. plausible downside risks; and • Annual Report and Accounts are fair, balanced and Areas that have been discussed and considered by the understandable – having been given sufficient time to consider Committee to be appropriate in relation to the 2020 Annual the Annual Report and Accounts, the Committee considered Report and Accounts are: the narrative and numerical disclosures within the Annual

Report and Accounts to assess whether the disclosures made • Impairment – the Committee considered the results and gave appropriate levels of emphasis to both favourable and disclosures of the impairment tests performed, ensuring unfavourable aspects of the Group’s performance, covering that the assessment made and conclusions reached were all aspects of the Group, in a manner which was clearly consistent with the analysis and reflected the changes in the understandable. As a result of this review, the Committee funeral and crematoria industries which include the impact made a recommendation to the Board that it could make the of COVID-19, increased consumer price awareness and statement that the Annual Report and Accounts were fair, competition, digitalisation and the conclusions of the CMA’s balanced and understandable. Final Decision Report following the market investigation;

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60 Dignity plc Annual Report & Accounts 2020 Audit Committee report continued Governance

External audit The Committee is confident that the objectivity and independence The Audit Committee is responsible for the development, of the external auditors is not compromised by reason of implementation and monitoring of the Group’s policy on external non-audit work, not least because such work will generally be audit. This policy assigns responsibility for monitoring objectivity, undertaken by other professional firms. A formal statement of independence and compliance with ethical and regulatory independence from EY has been received in respect of 2020. requirements to the Audit Committee with day-to-day responsibility assigned to the Interim Chief Financial Officer, Audit partner and firm rotation Dean Moore. The Committee also retains responsibility for the Consistent with the requirements of the Financial Reporting appointment and removal of the external auditors, who are Council’s Ethical Standard, EY audit partners serve for a currently EY. maximum of five years on listed clients. Adrian Roberts is Dignity’s audit partner having been appointed to the role in 2020. The Audit Committee, on an annual basis, formally considers the performance and independence of the external auditors. The The Audit Committee considers that the relationship with the formal annual review was completed in the first quarter of 2021. auditors is working well and is satisfied with their effectiveness This review took the form of a detailed questionnaire that was and there are no current plans to put the external audit out to sent to all Committee members and attendees at the Committee tender. The Committee confirmed compliance with the Statutory meetings. The Committee was, based on that review which Audit Services for Large Companies Market Investigation indicated a strong level of confidence in the external auditors, (Mandatory Use of Competitive Tender Processes and Audit fully satisfied with EY’s performance in 2020 and a resolution Committee Responsibilities) Order 2014, having last carried out to re-appoint them as external auditors will be tabled at the a competitive tender for audit services in 2014 which resulted in AGM on 23 June 2021. EY being appointed for the December 2014 period end. In line with the statutory requirements, the position of Group auditor The Committee confirms that during the year the Group has will be re-tendered in advance of the 2024 period end. complied with the provisions of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use The Audit Committee has also kept under review the of Competitive Tender Processes and Audit Committee independence of EY and has been satisfied at all times that Responsibilities) Order 2014, as published by the UK any threats arising to their independence have been subject Competition and Markets Authority. to appropriate safeguards.

Policy on non-audit fees Internal Audit The Group has a rigorous and comprehensive policy on the use The Group has a dedicated Internal Audit team, which reports of the external auditors for non-audit work. The policy states that to the Interim Chief Financial Officer, Executive Chairman and non-audit fees are limited to no more than 50 per cent of the the Audit Committee. The Head of Internal Audit coordinates annual audit fee unless there are exceptional circumstances, a risk-assessed programme of work across all departments which are defined as: and operations of the Company with the aim of ensuring full coverage over a three year cycle. Where appropriate, Internal • The work necessitates the use of the auditor for regulatory Audit utilise support from professional services firms to provide reasons; and subject matter expertise on specialist areas. • Their use represents a material time/cost benefit to the Group in conducting a transaction. During 2020 (as in previous years), there were quarterly meetings between the Head of Internal Audit and the Executive Directors The policy also precludes the use of the external auditors formally to review and discuss Internal Audit’s work programme for certain types of work. All such work is fully analysed in the and findings. In addition, regular meetings between the Head Annual Report between tax compliance and advisory, non- of Internal Audit and the external auditors, EY, were held statutory acquisition related services and statutory services. during the year to discuss and plan audit work and to ensure a Audit Committee approval is required prior to the work being complementary approach. The Head of Internal Audit provides commenced and further disclosure of the works and the reasons reports to the Audit Committee at every full meeting and met for it being performed by the external auditors will be disclosed on a one-to-one basis with the Chair of the Audit Committee, in the following Annual Report. The Audit Committee does not on three occasions in the period. In addition, a private meeting envisage that non-audit fees payable to the external auditors will is held annually between the Audit Committee members and exceed 50 per cent other than in exceptional circumstances. the Head of Internal Audit, without any Executive Directors present. This process allows the Committee to have appropriate In the period, EY undertook non-audit work on behalf of the discussion and debate with the Head of Internal Audit as well Group including a review of the Interim Report for 2020, a as to monitor the effectiveness of the Internal Audit function, financial covenants compliance certificate and certifications including comprehensive review of all reports and their required as part of the Group’s membership renewal of the conclusions. Funeral Planning Authority. Total fees of £59,000 were charged for non-audit services. The EY fee for audit services was £631,000.

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Dignity plc Annual Report & Accounts 2020 61

Whistleblowing We have a policy and procedure by which employees of the Group may, in confidence, raise concerns about possible improprieties in financial reporting or any other matter. This ensures arrangements are in place for the proportionate and independent investigation of such matters and appropriate follow-up action. A whistleblowing report is formally reviewed on an annual basis by the Committee or more frequently should the need arise.

Annual Evaluation During the period, the Board completed performance evaluations of itself and its Committees. The results of this are discussed on page 54. Specific matters reviewed by the Committee were:

• Time management; • Committee processes and support; • Quality of information received; • Support, training and induction; • The relationship with the Interim Chief Financial Officer, the former Finance Director, External Audit Partner and the Head of Internal Audit; • The effectiveness of the Committee in reviewing the Group’s financial reporting, the system of internal controls and monitoring the management of risk; • The effectiveness of the Committee in reviewing the work of both External and Internal Audit; and • Priorities for change.

Issues arising from the evaluation are reviewed and addressed.

I will be available to answer any questions about the work of the Committee at the AGM on 23 June 2021.

This Audit Committee report was reviewed and approved by the Board on 17 March 2021.

Paul Humphreys Chair of the Audit Committee

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62 Dignity plc Annual Report & Accounts 2020 Nomination Committee report Governance

The Committee has overseen the appointment of both a new Chair of the Audit Committee and of the Remuneration Committee. The Committee continues to ensure we have and will have the right blend of skills and experience on the Board to deliver our strategy.

Dear Shareholder, All the Non-Executive Directors are appointed for up to two year On behalf of the Board, it is my pleasure to present the 2020 terms which may then be renewed up to a maximum of nine Nomination Committee report as both Chairman of the years service in accordance with the independence guidelines in Company and the Nomination Committee. the 2018 UK Corporate Governance Code. During 2020, the membership of the Nomination Committee Tenure Length of tenure at 25 December 2020 (years) (the ‘Committee’) comprised Jane Ashcroft and David Blackwood both of whom stood down in the year (Jane in April and David in Name 1 2 3 4 5 6 7 June) and James Wilson, Dean Moore and Gillian Kent. David Blackwood (retired 11 June 2020) Dean Moore was appointed to the Board and this Committee on Jane Ashcroft (retired 3 April 2020) 11 March 2020 and, similarly, Gillian Kent on 11 June 2020. James Wilson Clive Whiley On 23 February 2021, Paul Humphreys was appointed an Dean Moore independent Non-Executive Director and now serves on this Committee. Gillian Kent

Currently, Gillian and Paul are the independent Non-Executive At 25 December 2020, Dean Moore had been on the Board for Directors serving on the Committee although both Dean and I nine months and Gillian Kent six months. were independent on appointment to the Board. The Company Secretary is Secretary to the Committee. The terms of reference of the Committee are available on the Group’s corporate website at www.dignityplc.co.uk. Currently, the Committee is looking to appoint a Chief Executive coterminous with the outcome of the strategic review. We have The Committee is committed to ensuring inclusion and diversity also commenced a search for a Chief Financial Officer. The at Board and all levels throughout the Group. Employee diversity objective is to maintain an appropriate balance of independent of those in senior and middle management roles is shown on Non-Executive Directors and suitable representation for the page 39. Board committees including throughout the period where Dean Moore is Interim Chief Financial Officer. We acknowledge that we have much to do to fulfil our diversity ambitions and it will take time: we will work towards making The authorities delegated to the Committee by the Board progress on this matter. comprise, among other matters: Following Jane Ashcroft’s retirement from the Board, Gillian Kent • The review of the structure, size, and composition of the Board; is currently the only woman on a Board of six Directors (17 per cent). While the Committee will continue to pursue a policy of • The evaluation of the balance of skills, knowledge, ensuring that the best people are appointed for the relevant independence, diversity and experience of the Board including roles, the benefits of greater diversity are recognised and will the impact of new appointments; continue to be taken into account when considering a particular • Overseeing and recommending the recruitment of new appointment. directors; I am also pleased to confirm that the Group will continue to • Ensuring appointments are made against objective criteria; and publish the details on corporate diversity and report on our • Succession planning to ensure processes and plans are in place compliance and appointment process in this Annual Report. with regard to both Board and senior appointments; keeping under review the leadership needs of the Group; and ensuring During the period, the Board completed performance that the Non-Executive Directors can meet the time evaluations of itself and its Committees. The results of this are requirements of the role. discussed on page 54. Specific matters reviewed by the Committee were: The principal duties of the Committee in 2020 were overseeing the appointment of Dean Moore to succeed David Blackwood • The process by which Board appointments are made; as Chair of the Audit Committee and Gillian Kent as Chair of the • Performance in reviewing the composition of the Board; Remuneration Committee. The Committee also reviewed the monitoring and oversight of succession planning processes • Any aspect of plans for Executive and Non-Executive succession together with ongoing succession planning and talent mapping which give cause for concern; and within the Group, identifying individuals and any development • How the Committee can improve its performance over the requirements necessary to ensure effective succession. coming year. Succession planning, development and leadership requirements Issues arising from the evaluation are reviewed and addressed. will continue to be reviewed in 2021. Finally, all Directors offer themselves for election or re-election The Committee is committed to embedding inclusion and diversity at the AGM on 23 June 2021 and I will be available at the AGM throughout the Group. The Company provides a balanced, to answer questions on the work of the Committee. supportive, caring and flexible culture and environment with working practices to accommodate peoples’ needs. In so doing, This Nomination Committee report was reviewed and approved it aims to continue to attract and retain the best candidates and by the Board on 17 March 2021. ensure the development of all Group employees.

The members of the Committee’s attendance record is set out on Clive Whiley page 54. The Committee’s proceedings are reported at the next Chair of the Nomination Committee Board meeting and the Committee’s minutes are made available to all members of the Board. 17 March 2021

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Dignity plc Annual Report & Accounts 2020 63 Report on Directors’ remuneration for the 52 week period ended 25 December 2020

Dear Shareholder, Andrew Judd, previously director of the Group’s funeral On behalf of the Board, I am pleased to present this Directors’ operations, joined the Board as an additional Executive Remuneration Report for the period ended 25 December Director with immediate effect. His package comprises a salary 2020, my first since being appointed Chair on 11 June 2020. of £200,000, pension contribution of 4 per cent (in line with the This has been a period of significant change for the business rate for the majority of the workforce), bonus opportunity of and Board and I am grateful for the support I have received 100 per cent of salary and an LTIP award for FY21 of 100 per from my Board colleagues through what has been a cent of base salary. challenging period for the business and its employees. Finally, I would like to welcome Paul Humphreys to the Board We have needed to act with great care and sensitivity during and this Committee. the year, to apply the remuneration policy to reflect the very significant impact on all stakeholders in the business caused by Activities in the period the COVID-19 pandemic, and at the same time to ensure that The key activities of the Committee during the period up to the we could move swiftly to refresh the Executive leadership team date of this report were: and accelerate the business transformation necessary to • Reviewing base salaries for Executive Directors and senior position us for the long-term. management;

We believe that our current remuneration policy has enabled • Approving the fee of the Executive Chairman and us to pay our senior executives appropriately and as we enter Interim CFO; the third and final year of the current three year policy period, • Approving the 2020 bonus outturn for Executive Directors the Committee is comfortable that it still supports the long- and senior management; term business strategy. Accordingly, we are proposing no • Setting the 2021 bonus targets for the Executive Director; changes to the policy for FY2021. • Approving awards and setting performance measures under Board changes the Company’s share plan; On 3 April 2020 the Board agreed with the Chief Executive, • Assessment of the 2018 to 2020 Long-Term Incentive Plan Mike McCollum, that he should step down from the Board performance; with immediate effect. • Application of the remuneration policy in 2020 and 2021;

Mike McCollum was paid 12 months’ salary, benefits and • Alignment of Executive Director pension contribution rates pension in lieu of notice in line with his contractual entitlements to the wider workforce; and treated as a ‘good leaver’ for the purpose of the 2020 • Reviewing Executive Director share ownership levels; annual bonus plan and for outstanding LTIP awards, which • Reviewing trends in market practice and investor guidelines; enabled a pro rata payment under both plans, dependent • Reviewing the Gender Pay Gap and plans for diversity and on the achievement of the performance conditions. inclusion;

Clive Whiley, who was appointed Non-Executive Chairman on • Reviewing the Company Performance Management 19 September 2019, agreed to step up temporarily to the role framework; and of Executive Chairman and his fee increased from £175,000 • Approving the 2020 Directors’ Remuneration Report. to £475,000 for the duration of the temporary role. We are

currently in a process to find a new Chief Executive Officer. Performance in 2020 and annual bonus and 2018-20

LTIP outcome On 14 December we announced that we had reached an The 2020 annual bonus was measured 70 per cent against agreement with Steve Whittern, our Finance Director, and stretching underlying operating profit targets, our key short- Richard Portman, our Corporate Services Director, to step term financial performance indicator. Underlying operating down from the Board and they stepped down from the profit in 2020 was £55.7 million (before the Committee used business with immediate effect in the case of Steve Whittern discretion to reduce management bonuses and make the staff and on 31 December in the case of Richard Portman. Both award, detailed below), which was within the target range and executives were paid 12 months’ salary, benefits and pension would have generated a bonus of 41.8 per cent out of the in lieu of notice in line with their contractual entitlements and 70 per cent for this element. The remaining 30 per cent of the treated as a ‘good leavers’ for the purpose of the 2020 annual bonus was based on the achievement of three key strategic bonus plan and for outstanding LTIP awards, which enabled initiatives, being the delivery of the annual objectives under a pro rata payment under both plans, dependent on the the Transformation Plan, Customer Service and Funeral Market achievement of the performance conditions. The Committee Share. The 10 per cent element based on the Transformation used discretion to pay the bonus to Richard Portman and Steve Plan was not achieved, as this was paused in order to conduct Whittern in cash rather than 20 per cent deferred in shares. the strategic review. Our Funeral Market Share of 11.98 per

cent and our Customer Recommendation score of 90.8 per Dean Moore, who was appointed to the Board as a Non- cent exceeded the top end of the target ranges of 11.72 per Executive Director on 11 March 2020, has become Interim cent and 90.8 per cent respectively and so each 10 per cent Chief Financial Officer and is receiving a fee of £316,200 for element based on Funeral Market Share and Customer the role, whilst the Company identifies a suitable candidate Recommendation were achieved in full. On this basis the for the permanent role.

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64 Dignity plc Annual Report & Accounts 2020 Report on Directors’ remuneration continued for the 52 week period ended 25 December 2020 Governance

formula driven bonus indicated a pay out of 49.3 per cent achieving growth in Market Share, this measure will be subject of the maximum. However, the Committee considered this to a performance underpin which requires the Remuneration bonus outturn in light of higher than average death rate in Committee to be satisfied that our underlying profitability is 2020 caused by the impact of the pandemic, as well as the in line with our business plan over the performance period. extremely challenging operating environment that all of our The other 50 per cent of the award is based on the Company’s employees faced during the year and used its discretion to relative Total Shareholder Return compared to the Companies determine that the bonus level for Executive Directors and in the FTSE SmallCap Index. This provides a good balance other senior executives should be scaled back significantly. In between the financial strategic measure (underpinned by considering the appropriate bonus level for Executive Directors profitability) and the overriding objective of delivering a and the rest of the management population, the Committee superior level of shareholder return. determined that the scale back should be based on delivering the same bonus level (as a percentage of maximum bonus) for The LTIP award was granted at a 100 per cent of salary level, the entire management population, equivalent to 18 per cent reduced from the policy level of 150 per cent of salary in light of their maximum bonus opportunity. In addition to ensuring of the current relatively low share price. that the outturn was consistent with the employee experience, the Committee also noted that, with the exception of business How we will apply the new policy in 2021 rates relief, the Company had not benefitted from any direct The Executive Chairman and Interim Chief Financial Officer Government financial support and had not needed to use the will receive a fee of £475,000 and £316,200 respectively and Coronavirus Job Retention Scheme. will not participate in the annual bonus plan or LTIP.

This significant saving generated by scaling back the potential The Executive Director of Funeral Operations will receive a bonus pay-out to the senior managers and executives in the salary of £200,000, and will participate in the annual bonus business, has been used to contribute towards an additional plan, with a maximum opportunity of 100 per cent of salary. £500 bonus to all staff and £150 to casual staff in recognition 70 per cent of the bonus will be based on a mix of stretching of their outstanding performance and commitment to the underlying operating profit targets and 30 per cent based on Company and the public over the year. market share measures which underpin our strategy as set out on page 5. We will move from underlying EBIT to underlying The LTIP award granted in 2018 was subject to performance EBITDA this year, as this will provide a cleaner measure of against an absolute TSR target to be achieved at the end of profitability as we transform the business in line with the 2020. Dignity's TSR performance over this period failed to strategic review. achieve the minimum threshold and so this award will lapse with no shares vesting. In relation to the FY21 LTIP award, having considered the performance measures carefully for the delayed FY20 award, The Committee considers that, having used discretion to the same Market Share and Relative TSR performance scale back the 2020 annual bonus pay-out, there has been an measures will again apply, with updated performance targets. appropriate link between reward and performance, taking into The Committee will consider carefully the grant level in light account external factors and internal relativities between the of the prevailing share price at the time of grant, but intends pay levels of executives and employees. to apply a grant level of 100 per cent of base salary for the award to the Executive Director of Funeral Operations, which is Furthermore, the Committee confirms that targets for annual a reduction from the usual policy level of 150 per cent of base bonus and outstanding LTIP awards have not been adjusted salary. Recognising the short period of time that has elapsed in light of COVID-19 related factors. since the delayed FY20 grant, the ongoing uncertainty relating to the pandemic and that the rolling three year business plan FY20 LTIP award is due to be completed in the Summer, the Committee has As described in last year’s report, we delayed the grant of the determined that the Market Share targets to be achieved in 2020 LTIP award as it was very difficult to set accurate long- FY23 should be set later in the year (within six months of the term financial performance conditions until the findings of grant). This short delay will enable the Committee to pitch the the CMA report were published. Subsequently there was a appropriate level of stretch in the target range more accurately. further delay due to the impact of the COVID-19 pandemic on the business and the realignment of the business strategy. Concluding remarks The Committee approved the LTIP award levels, performance On behalf of the Remuneration Committee, I would like measures and the weightings in September and finalised the to thank shareholders for their ongoing support and I look targets in December. forward to this continuing at the forthcoming Annual General Meeting. There is a very clear priority in our business strategy to grow our Funeral Market Share, following several years of decline. Accordingly, for this award the Committee determined that Gillian Kent there should be a clear focus on growing our Funeral Market Chair of the Remuneration Committee Share and so 50 per cent of the award is based on this measure, providing a direct line of sight for our senior management 17 March 2021 team to this cornerstone in the business strategy. However, recognising the importance of ensuring that our profit margin remains in line with our business plan at the same time as V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 68

Dignity plc Annual Report & Accounts 2020 65

REMUNERATION POLICY REPORT

This section of the Directors' Remuneration Report has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and sets out the remuneration policy which shareholders approved at the AGM on 13 June 2019. The policy took formal effect from the date of approval and is intended to apply until the 2022 AGM.

Overview of Remuneration Policy The objective of the remuneration policy is to provide remuneration packages to each Executive Director that will:

• Align rewards with the interests of shareholders; • Motivate and encourage superior performance; • Allow the Group to retain the talent needed to execute its business strategy; • Enable the Group to be competitive when recruiting appropriately skilled and experienced management; and • Ensure that the overall package for each Director is linked to strategic objectives of the Group.

The table on pages 66 and 67 summarises the main components of Dignity's remuneration policy. Details of how the Committee will implement the policy are provided in the Annual Report on Remuneration on page 70. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 69

66 Dignity plc Annual Report & Accounts 2020 Report on Directors’ remuneration continued for the 52 week period ended 25 December 2020 Governance

Element Purpose and link Operation Maximum opportunity Framework used to to strategy assess performance

Base salary Essential to recruit and Salaries are paid monthly. They are normally reviewed annually There is no prescribed maximum. The Committee reviews retain executives of and fixed for 12 months commencing 1 January. Generally, the Committee is the salaries of Executive a high calibre. In deciding appropriate levels, the Committee takes into account: guided by average increases Directors each year taking Reflects an individual's across the workforce. However, due account of all the factors • the role, experience, responsibility and performance (individual described in how the salary experience, role and and Group); higher increases may be awarded performance. on occasion, for example, where policy operates. • increases applied to the broader workforce; and To provide a fair an individual is promoted or fixed level of pay • relevant market information for similar roles in broadly similar has been recruited on a below commensurate for the companies of a similar size. market rate, where there have role, ensuring no over been changes to individual reliance on variable pay. responsibilities or in the size or complexity of the business or where salaries have fallen significantly below mid-market levels.

Benefits To provide competitive Benefits include but are not limited to provision of a company car There is no prescribed maximum Not applicable. benefits to help recruit (or cash allowance in lieu), fuel, landline telephone and broadband as costs may vary in accordance and retain executives at each Executive Director’s home residence, mobile phone, family with market conditions. and to ensure the well- private medical cover and a pre-arranged funeral plan for the Relocation expenses must be being of the executives. individual or spouse. reasonable and necessary. Relocation or other related expenses may be offered, as required. HMRC tax-approved limits will Executive Directors are also eligible to participate in the all- apply to all employee share employee HMRC approved share schemes on the same basis schemes. as other employees. Any business expenses incurred in carrying out an executive’s duties which are deemed to be taxable will be reimbursed by the Company together with any personal tax due.

Pension To provide retirement The Company operates a defined benefit plan, the Dignity The accrual rate under the Not applicable. benefits in line with the Pension and Assurance Scheme, under which selected executives defined benefit scheme was one overall Company policy. may accrue benefit. The defined benefit plan is closed to eightieth of final salary for every new members. completed year of service. The Company may contribute to selected individuals' personal The Company contribution to pension schemes or is able to make salary supplements in lieu defined contribution plans or of pension contributions. salary supplement in lieu of pension may be made up to the value of 15 per cent of salary. The Committee will provide a pension provision for new Executive Directors’ in line with that of the workforce.

Annual To motivate executives 20 per cent of any annual bonus earned will be deferred in shares, 135 per cent of salary for the Performance metrics are bonus and incentivise the with the remainder being payable in cash. Chief Executive and 125 per cent selected annually based on achievement of annual Deferred shares vest after two years subject to continued of salary for the other Directors. the Group's strategic objectives. financial and/or employment but no further performance targets. The vesting The bonus may be based strategic business period continues post cessation of employment. on the achievement of an targets. To ensure appropriate mix of challenging further alignment with A dividend equivalent provision allows the Committee to pay an financial, strategic or personal shareholders through additional amount equal to the value of the dividends that would targets with financial measures the retention of have been payable on the vested deferred shares over the vesting accounting for the majority deferred equity. period (normally in shares but may be in cash in exceptional of the bonus. Measures and circumstances). This may assume the reinvestment of dividends weightings may change each on a cumulative basis. year to reflect any year-on-year Bonus payments, including deferred bonus awards, are subject changes to business priorities. to recovery and withholding provisions as set out in note 1. • For financial metrics, a range of targets may be set by the Committee, taking into account the business outlook for the year. For financial metrics up to 20 per cent of the maximum potential bonus is payable for threshold performance and up to 60 per cent of maximum potential bonus is payable for target performance. • In relation to strategic targets the structure of the target will vary based on the nature of the target set and it will not always be practicable to set targets using a graduated scale. Vesting may therefore take place in full if specific criteria are met in full. The Committee may adjust the bonus that is payable if it considers the formulaic outcome is not representative of the underlying performance of the Company, investor experience or employee reward outcome. See note 2 for additional detail. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 70

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Element Purpose and link Operation Maximum opportunity Framework used to to strategy assess performance

Long–Term Incentivises selected Awards are normally granted annually in the form 150 per cent of salary. Awards under the LTIP vest subject to the Incentive employees and of nil cost options or conditional share awards. satisfaction of challenging performance targets Executive Directors Plan Participation and individual award levels will be set at the time of award. to achieve successful reviewed annually (subject to the individual limit) taking 25 per cent of the award vests for threshold execution of business into account matters such as market practice, overall performance. strategy over the remuneration, the performance of the Group and the longer-term. Performance periods will normally start from the Executive being granted the award. beginning of the financial year in which the award Provides long-term Awards normally vest after three years subject to the is made. retention. achievement of stretching performance conditions The Committee may scale back the LTIP vesting Aligns the interests and continued employment. amount if it considers the formulaic outcome is of the Executives and Following vesting, the net of tax vested shares must be not representative of the underlying performance shareholders through retained for two years. The post vesting holding period of the Company, investor experience or employee the requirement to continues post cessation of employment. reward outcome. build up a substantial shareholding. Awards are subject to recovery and withholding See note 2 for additional detail. provisions as set out in note 1. A dividend equivalent provision allows the Committee to pay an additional amount equal to the value of the dividends that would have been payable on the vested shares over the vesting period (normally in shares but may be in cash in exceptional circumstances) and may assume the reinvestment of dividends on a cumulative basis.

Non–Executive To attract and retain a The Board determines the fees of the Non-Executive There is no prescribed Neither the Non-Executive Chairman nor the Chairman and high-quality Chairman Directors. They are based upon recommendations maximum, however, Non-Executive Directors are eligible for any and experienced Non- from the Chairman and Chief Executive (or, in the case any increase to fees performance related remuneration. Directors’ fees Executive Directors. of the Chairman, based on recommendations from will be considered in the Remuneration Committee and the Chief Executive). light of the expected Both the Chairman and the Non-Executive Directors time commitment in are paid annual fees and do not participate in any performing the role, incentive plans or receive pension or other benefits. scope and responsibility, James Wilson has elected not to receive a fee. increases received by the wider workforce The Chairman receives a single fee covering all his and market rates duties. The Non-Executive Directors receive a basic fee in comparable and additional fees payable for chairing the Audit and companies. Remuneration Committees and for performing the Senior Independent Director role. Supplemental fees may be paid for additional responsibilities and activities and additional fees for chairing new board committees or for other additional roles requiring additional time commitment. The Chairman and Non-Executive Directors shall be entitled to have reimbursed all expenses that they reasonably incur in the performance of their duties, including those expenses that have been deemed to be taxable benefits by HMRC. This includes any personal tax that may become due. The level of fees of the Non-Executive Directors reflects the time commitment and responsibility of their respective roles. Their fees are reviewed from time to time against broadly similar UK listed companies and companies of a similar size. In exceptional circumstances, additional fees may be payable to reflect a substantial increase in time commitment of the Non-Executive Chairman and Directors.

Share To align the interests Executive Directors are required to build and maintain Not applicable. Not applicable. ownership of management and a holding of shares to the value of at least 200 per cent shareholders and of base salary. We will value shareholdings using the requirement promote a long-term value of beneficially owned shares plus the net of approach to tax value of deferred bonus shares and vested but performance. unexercised LTIP awards. The calculation of the shareholding level will be based on the average price for the last month of the financial year and the salary at the end of the financial year. Until the guideline is met, the executive is required to retain 50 per cent of shares acquired under the Company’s share plans (after allowing for tax and national insurance liabilities). In addition, a shareholding requirement of 50 per cent of the 200 per cent of salary in-service requirement (i.e. 100 per cent of salary) is required to be held for one year post cessation of employment applying to share awards granted from 2020.

Notes 1. Recovery and withholding provisions apply to variable pay, to enable the Company to recover amounts paid under the annual bonus, deferred annual bonus share plan and LTIP in the event of a restatement of the accounts, an error in calculation leading to an over-payment, corporate failure or failure in risk management or if the participant has been guilty of gross misconduct or has brought the Company or any member of the Group into disrepute. Payments may be recovered for up to two years after payment/vesting or two external audit cycles. The amount to be recovered would generally be the excess payment over the amount which would otherwise be paid, and recovery may be satisfied in a variety of ways, including through the reduction of outstanding deferred annual bonus awards, reduction of the next bonus or LTIP vesting and seeking a cash repayment. 2. The Committee assesses annually at the beginning of the relevant performance period which performance measures, or combination and weighting of performance measures, are most appropriate for both annual bonus and any LTIP awarded to reflect the Company’s strategic initiatives for the performance period. The Committee has the discretion to change the performance measures for awards granted in future years based upon the strategic plans of the Company. In determining the target range for any financial measures that may apply, the Committee ensures they are challenging by taking into account current and anticipated trading conditions, budget, the long-term business plan and external expectations. 3. The Committee considers the general basic salary increase for the broader employee population when determining the annual salary review for the Executive Directors. The performance measures and targets for annual bonus and LTIP awards for Executive and Senior Managers are aligned to those of the Executive Directors to ensure that everyone is focusing and working together on the same critical measures of performance. All permanent employees are invited to participate in the SAYE scheme which provides a mechanism for everyone to share in the overall success of the Group through sustained longer-term share price growth. Overall, the remuneration policy for the Executive Directors and more senior management is more heavily weighted towards variable pay than for other employees. This ensures that there is a clear link between the performance and value created for shareholders and the remuneration received by those individuals who are considered to have the greatest potential to influence Group performance and value creation.

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Bonus Plan and LTIP discretions The Committee will operate the annual bonus plan and LTIP according to their respective rules and in accordance with the Listing Rules and HMRC rules where relevant. A copy of the LTIP rules is available on request from the Company Secretary. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of these plans. These include (but are not limited to) the following (albeit with the level of award restricted as set out in the policy table on page 67):

• Who participates in the plans; • The timing of grant of award and/or payment; • The size of an award and/or a payment; • Discretion relating to the measurement of performance in the event of a change of control or reconstruction; • Determination of a good leaver (in addition to any specified categories) for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen; • Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, on a change of control and special dividends); and • The ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose whilst being no less stretching.

Legacy arrangements Any commitments entered into with current or former Directors that have been disclosed previously to shareholders will be honoured.

Remuneration scenarios for Executive Directors The Company's policy results in a significant proportion of remuneration received by Executive Directors being dependent on Company performance. The graph below illustrates how the total pay opportunities for the Executive Directors for 2021 vary under three performance scenarios: minimum, target and maximum.

Remuneration (£000s)

£750 £720 Fixed Pay £620 Annual Bonus LTIP 32.5% LTIP with 50% Share Price Growth £500 £475 £475 £475 £420

£316 £316 £316 24% 32.5% 24% £250 £220

100% 100% 100% 100% 100% 100% 100% 52% 35% £- Below Target Maximum Below Target Maximum Below Target Maximum target target target

Executive Chairman Interim Chief Financial Officer Executive Director of Funeral Operations

Notes • Below target comprises fixed pay, which comprises 2021 basic salary, the value of benefits in 2020 and a four per cent company pension contribution. • Target comprises fixed pay and assumes a bonus of 50 per cent of maximum is paid and 50 per cent of the LTIP award vests. • Maximum comprises fixed pay, assumes full bonus payment of 100 per cent of salary and full LTIP vesting of 100 per cent of salary. A 50 per cent increase in the value of the LTIP is also to show the impact of the share price growth. The 50 per cent increase is calculated using the maximum expected LTIP value.

Recruitment and Promotion policy The remuneration package for a new Director will be established in accordance with the Company's approved policy subject to such modifications as are set out below.

Salary levels for Executive Directors will be set in accordance with the Company's remuneration policy, taking into account the experience and calibre of the individual and their existing remuneration package. Where it is appropriate to offer a lower salary initially, a series of increases to the desired salary positioning may be made over subsequent years subject to individual performance and development in the role. Benefits will generally be provided in line with the approved policy, with relocation or other expenses provided for if necessary. For any new appointments, the pension contribution will be in line with that applying to the majority of the workforce.

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The structure of variable pay elements will be in accordance with the Company's approved policy detailed above. The maximum variable pay opportunity will be as set out in the remuneration policy table. Different performance measures may be set initially for the annual bonus in the year of joining, taking into account the responsibilities of the individual, and the point in the financial year that he or she joined the Board.

In the case of external recruitment, if it is necessary to buy out incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer), this may be provided, with the new awards taking into account the form (cash or shares), timing left to vesting, the extent to which performance conditions apply and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited. Replacement share awards, if used, may be granted using the Company's existing share plans to the extent possible, although awards may also be granted outside of these schemes. The aim of any such award would be to ensure that as far as possible, the expected value and structure of the award will be no more generous than the amount forfeited.

In the case of an internal recruitment, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant or adjusted as considered desirable to reflect the new role.

Fees for a new Chairman or Non-Executive Director will be set in line with the approved policy.

Service contracts and payments for loss of office The Service contracts for Executive Directors will continue indefinitely unless determined by their notice period. Under the Executive Directors' service contracts and in line with the policy for new appointments, 12 months' notice of termination of employment is required by either party.

All Non-Executive Directors have letters of appointment with the Company for an initial period of two years, subject to annual re- appointment at the AGM. Appointments may be terminated with three months' notice. The appointment letters for the Chairman and Non-Executive Directors provide that no compensation is payable on termination, other than accrued fees and expenses.

All Directors submit themselves for election or re-election at the Annual General Meeting each year. Service contracts and letters of appointment are available for inspection at the Company's registered office.

For Executive Directors, the Company may in its absolute discretion at any time after notice is served by either party, terminate a Director’s contract with immediate effect by paying an amount equal to base salary for the then unexpired period of notice plus the fair value of contractual benefits subject to the deduction of tax. All payments would discontinue or reduce to the extent that alternative employment is obtained.

An Executive Director's service contract may be terminated without notice for certain events such as gross misconduct or a serious breach of contract. No payment or compensation beyond salary (and the value of holiday entitlement) accrued up to the date of termination will be made if such an event occurs.

There are no special provisions relating to change of control. The policy on termination is that the Group does not make payments beyond its contractual obligations and the Committee ensures that there are no unjustified payments for failure.

Any statutory payments required by law may be made. The Company may also pay outplacement, legal and other reasonable relevant costs associated with termination and may settle any claim or potential claim relating to the termination.

Treatment of outstanding incentive awards At the discretion of the Committee, for certain good leaver circumstances (such as death, illness, injury, disability, redundancy, retirement, their employing company ceasing to be a Group company or the undertaking business or division for which he or she works being sold out of the Company's group, or any other circumstances at the discretion of the Committee), a pro rata bonus may become payable at the normal payment date for the period of employment and based on full year performance.

The treatment of share-based incentives previously granted to an Executive Director will be determined based on the plan rules. The default treatment will be for outstanding awards to lapse on cessation of employment. However, an executive will be treated as a 'good leaver' under certain circumstances such as death, illness, injury, disability, redundancy, retirement, their employing company ceasing to be a Group company or the undertaking business or division for which he or she works being sold out of the Company's group, or any other circumstances at the discretion of the Committee. Under the Deferred Share Bonus Plan, if treated as a good leaver, awards will normally vest on the original vesting date. Under the LTIP, if treated as a good leaver, awards will vest at the normal vesting date subject to the extent to which performance targets have been achieved. The number of LTIP awards that would vest will normally be reduced pro rata to reflect the proportion of the three year period actually served. A post vest holding period would continue to apply.

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External directorships The Group allows Executive Directors to hold a Non-Executive position with one other company or organisation, for which they can retain the fees earned. This policy does not apply to the Executive Chairman and Interim Chief Financial Officer.

How shareholder views are taken into account The Remuneration Committee is committed to ensuring an open dialogue with our shareholders and therefore, where changes are being made to the remuneration policy or where there is a material change in which we operate our policy, we will consult with major shareholders in advance. The Remuneration Committee adopted such an approach in putting together this policy by consulting the Company's largest shareholders and shareholder advisory bodies beforehand.

In addition, the Committee considers shareholder feedback received in relation to the AGM each year and guidance from shareholder representative bodies more generally.

Consideration of employment conditions elsewhere in the Group As part of the Committee’s wider remit and as part of the Directors’ Remuneration Policy review process, the Committee reviewed with management the pay structures across the wider Group and certain changes were made to the wider Group policy as a result of the review to ensure an appropriate and clear cascade of the Executive Directors’ policy to the wider Group. The Committee will continue within its Terms of Reference to monitor pay policies and practices within the wider Group and to provide input and challenge in respect of current policies and practices as well as any proposed future review and changes to ensure that they are appropriate, fair, aligned to the Executive Directors’ Remuneration Policy and support the culture and growth of the business.

An Employee Forum was established in 2019 following an election of Employee Representatives. The Forum provides the opportunity for the appointed Employee Representatives to discuss business objectives, facilitate change and continuous improvement through a pro-active dialogue. It’s also a place in where they can share suggestions, ideas and feedback from the colleagues they represent, to help shape our future. The Company Secretary has engaged with the Forum to explain the alignment of the Directors’ Remuneration Policy to the wider Group pay policy.

ANNUAL REPORT ON REMUNERATION

The Annual Report on Remuneration set out below (together with the Remuneration Committee Chair’s Annual Statement) will be put to an advisory shareholder vote at the 2021 AGM. The information below includes how we intend to operate our policy in 2021 and the pay outcomes in respect of the 2020 financial year. The information from the single total remuneration figures for Directors on page 72 to the end of the section on loss of office payments on page 78 has been audited. The remainder is unaudited.

Implementation of Remuneration Policy in 2021

Salaries The Committee has determined that the Executive Directors will not receive a base salary/fee increase for 2021. Therefore, the salaries as at 1 January 2021 are: 2021 2020 Increase £ £ %

Clive Whiley (Executive Chairman) 475,000 475,000(a) – Dean Moore (Interim Chief Financial Officer) 316,200 316,200(b) – Andrew Judd (Executive Director of Funeral Operations) 200,000 200,000(c) –

(a) Since being appointed Executive Chairmen on 3 April 2020. (c) Since being appointed Interim Chief Financial Officer on 14 December 2020. (c) Since being appointed Executive Director of Funeral Operations on 14 December 2020.

Non-Executive Directors' fees The current fee levels for Non-Executive Directors, are as detailed below. There is no increase in fee levels for 2021:

2021 2020 Increase £ £ %

Basic fee for Non-Executive Directors 46,850 46,850 – Supplementary Senior Independent Director fee 9,700 9,700 – Supplementary Audit Committee Chairman fee 9,350 9,350 – Supplementary Remuneration Committee Chairman fee 6,300 6,300 –

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Pension and Benefits Andrew Judd will receive a salary supplement in lieu of pension of four per cent of basic salary. Benefits will be provided in line with the approved remuneration policy.

Pension contribution for new Executive Directors will be in line with the pension plan for the majority of the workforce, which is currently four per cent of base salary.

Annual bonus The maximum bonus potential will be 100 per cent of salary for the Executive Director of Funeral Operations. The Executive Chairman and Interim Chief Financial Officer (both temporary appointments) will not participate in the annual bonus plan.

70 per cent of the bonus will be based on a mix of stretching underlying operating profit targets and 30 per cent on a strategic objective in relation to Project 20:20 (see page 5 of the Executive Chairman’s review). Underlying EBITDA will provide a measure of underlying profitability and the Project 20:20 objective will support our business in accordance with the strategic review.

For the underlying EBITDA element, 20 per cent of the maximum will become payable for achieving a threshold level of performance, rising incrementally so that 50 per cent of the maximum will be payable for achieving a target level of performance and there will be a full pay out for significant over-achievement of target.

The strategic element will be based on a stretching target range in relation to Project 20:20 under which we aim to grow our market share significantly to 20 per cent by 2025.

There will be Committee discretion to adjust the formula driven outturn to ensure that the bonus payments also reflect performance more broadly and the experience of other stakeholders in the business.

The underlying EBITDA element target range and the strategic objective targets are deemed to be commercially sensitive and have not been disclosed prospectively. However, full retrospective disclosure of the targets and performance against them will be provided in next year's Remuneration Report.

20 per cent of any annual bonus earned will be deferred in shares. The deferred shares will vest after two years subject to continued employment.

Long-Term Incentive Plan The Executive Director of Funeral Operations will receive an LTIP award at 100 per cent of base salary.

The awards will be based 50 per cent on Funeral Market Share with a requirement to achieve an improved level of Market Share. Recognising the short period of time that has elapsed since the delayed FY20 grant, the ongoing uncertainty relating to the pandemic and that the rolling three year business plan is due to be completed in the Summer, the Committee has determined that the Market Share targets to be achieved in FY23 should be set later in the year (within six months of the grant). This short delay will enable the Committee to pitch the appropriate level of stretch in the target range more accurately. As with the FY20 grant, there will again be an underpinning performance condition whereby the Committee must be satisfied that our underlying profitability must be in line with the business plan over the performance period. The remaining 50 per cent will be based on the Company’s Total Shareholder Return compared to the FTSE SmallCap Index of companies (excluding Investment Trusts) over the three year period to 31 December 2023. In each case 25 per cent of each element of the award will vest for threshold performance.

The Market Share performance conditions will be published later in the corporate governance section of the website and disclosed fully in the next Annual Report.

We are conscious that our Market Share performance measure will be a performance condition in both the FY21 annual bonus and the Long-Term Incentive Plan awards. We believe that this overlap is appropriate this year as we aim to kick-start our growth towards the achievement of this critical strategic objective.

Executive Directors are required to hold the net of tax vested shares for two years following vesting.

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Total remuneration payable to Directors in 2020 Fixed Pay Pay for Performance

Total Annual Total Total Salary/fee Benefits(a) Pension fixed pay bonus(j) LTIP variable pay remuneration £000 £000 £000 £000 £000 £000 £000 £000

Executive Directors Clive Whiley 2020 400 – – 400 – – – 400 2019 46 – – 46 – – – 46 Andrew Judd(k) 2020 190 12 8 210 26 – 26 236 2019 – – – – – – – – Mike McCollum(b) 2020 171 10 26 207 31 – 31 238 2019 512 20 77 609 124 – 124 733 Richard Portman(d) 2020 248 19 37 304 56 – 56 360 2019 248 18 37 303 56 – 56 359 Steve Whittern(c) 2020 316 20 47 383 71 – 71 454 2019 316 20 47 383 71 – 71 454 Dean Moore(h) 2020 5 – – 5 – – – 5 2019 – – – – – – – –

Non–Executive Directors Dean Moore(h) 2020 59 – – 59 – – – 59 2019 – – – – – – – – Gillian Kent(i) 2020 30 – – 30 – – – 30 2019 – – – – – – – – Jane Ashcroft(g) 2020 12 – – 12 – – – 12 2019 47 – – 47 – – – 47 David Blackwood(f) 2020 27 – – 27 – – – 27 2019 110 – – 110 – – – 110 James Wilson(j) 2020 n/a n/a n/a n/a n/a n/a n/a n/a 2019 n/a n/a n/a n/a n/a n/a n/a n/a

(a) Taxable benefits for the year included: provision of a company car or allowance, fuel, family private medical cover, landline telephone and broadband at each Executive Director’s home residence and a mobile telephone together with a pre-arranged funeral plan in accordance with any scheme established by the Group in respect of the funeral of the Executive Director or his spouse. (b) Mike McCollum stepped down from the Board on 3 April and remuneration is up to that date. In addition to remuneration receivable for services as a Director, contractual amounts were payable in relation to his Settlement Agreement. Further details of the breakdown are on page 77. (c) Steve Whittern stepped down from the Board on 14 December and remuneration is up to that date. In addition to remuneration receivable for services as a Director, contractual amounts were payable in relation to his Settlement Agreement. Further details of the breakdown are on page 77. (d) Richard Portman stepped down from the Board on 14 December and remuneration is up to that date. In addition to remuneration receivable for services as a Director, contractual amounts were payable in relation to his Settlement Agreement. Further details of the breakdown are on pages 77 and 78. (e) Clive Whiley was appointed to the Board as Non-Executive Chairman on 26 September 2019. The fee for 2020 is the Non-Executive Chairman’s fee to 3 April 2020 and the Executive Chairman’s fee for the remainder of the year. (f) David Blackwood stepped down from the Board at the AGM on 11 June 2020. (g) Jane Ashcroft stepped down from the Board on 3 April 2020 and the fee represents the pro rata payment to that date of the base Non-Executive Director fee. (h) Dean Moore was appointed to the Board on 11 March 2020 and the remuneration payable represents his standard Non-Executive Director fees from that time to 14 December and then an enhanced fee for 15 December to 31 December for his role as Interim Chief Financial Officer. (i) Gillian Kent was appointed to the Board on 11 June 2020 and the fee is the pro rata payment of the base Non-Executive Director fee and the supplement for chairing the Remuneration Committee. (j) James Wilson has elected not to receive a Non-Executive Director’s fee. (k) Andrew Judd was appointed to the Board on 14 December 2020. £190,000 was his 2020 full year salary.

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Determination of 2020 annual bonus The 2020 annual bonus was based on the achievement of underlying operating profit targets (70 per cent) and strategic targets (30 per cent).

Bonus payment against the underlying operating profit range is set out below:

Threshhold Stretch 2020 actual (for which 20% of (for which 100% of (before additional Bonus payable Weighting maximum payable) maximum payable) bonus payment to staff) (out of maximum) % £m £m £m %

Underlying operating profit 70 55.2 67.2 58.5 29.3 Strategic measures 30 Two thirds 20 Total overall bonus before Committee discretion to scale back 49.3 Total overall bonus after Committee discretion to scale back 18.0

The level of EBIT that would have been used to determine Executive bonuses in line with the formula set at the start of the year was £58.5 million, before the Committee used discretion to reduce executive bonuses significantly, which contributed towards the staff award, the net effect of which reduced declared profit to £55.7 million.

Strategic objectives were set based on the three most critical business priorities for the year each equally weighted at 10 per cent.

The strategic objectives and the Committee’s assessment of their achievement is summarised below:

Detail of objective

1. Funeral Market Share (10 per cent out of the 30 per cent Strategic Objectives element) is the number of funerals performed by the Company's group in Great Britain (excluding Northern Ireland) in the 2020 financial year as a proportion of the total estimated number of deaths in that region during the period (as estimated and calculated by the Company).

The target range required the Company's Funeral Market Share to be between 11.62 per cent, at which point 20 per cent of this element of the bonus would be payable, and 11.72 per cent (or greater) at which point 100 per cent of this element of the bonus would be payable.

Committee assessment With a Funeral Market Share of 11.98 per cent (up from 11.7 in 2019) the maximum threshold was exceeded.

Outcome 10 per cent out of 10 per cent achieved.

Detail of objective

2. Customer Recommendation (10 per cent out of the 30 per cent Strategic Objectives element) means the percentage of customer survey respondents for funerals conducted in the 2020 financial year who confirmed that they would definitely recommend Dignity.

The target range required the Customer Recommendation to be equivalent to the average of 2017-19, at which point 20 per cent of this element of the bonus would be payable, and 90.8 per cent (or greater) at which point 100 per cent of this element of the bonus would be payable.

Committee assessment The Company's Customer Recommendation score was 90.8 per cent, resulting in the maximum target being achieved. This was recognised as being an excellent result in very challenging market and operating conditions.

Outcome 10 per cent out of 10 per cent achieved.

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Detail of objective

3. Transformation Plan (10 per cent out of the 30 per cent Strategic Objectives element) relates to the progress made in the 2020 financial year in implementing the Transformation Plan.

The Committee took account of whether exceptional performance has been demonstrated in the delivery of the Transformation Plan in FY19.

Committee assessment The Board paused the Transformation Plan in light of the Strategic Review so this measure was not achieved.

Outcome Nil per cent out of 10 per cent.

The Committee was comfortable that the improvements in Funeral Market Share and the excellent Customer Recommendation result were notable achievements in a challenging year and important building blocks to future shareholder value and that progress on each measure merited a bonus payment.

Summary of performance achievement and bonus payments The formula driven bonus indicated a pay out of 49.3 per cent of the maximum. However, the Committee reviewed this bonus outturn in light of higher than average death rate in 2020 caused by the impact of the pandemic, as well as the extremely challenging operating environment that all of our employees faced during the year and used its discretion to determine that the bonus level for Executive Directors and other senior executives should be scaled back significantly. In considering the appropriate bonus level for Executive Directors and the rest of the management population, the Committee determined that the scale back should be based on delivering the same bonus level (as a percentage of bonus opportunity) for the entire management population, equivalent to 18 per cent of the bonus opportunity.

This significant saving generated by scaling back the potential bonus pay-out to the senior managers and executives in the business, has been used to pay an additional £500 bonus to all full-time staff and £150 to casual staff in recognition of their outstanding performance and commitment to the Company and the public over the year. Pay-out (% of maximum) Pay-out (% of Bonus outcome after use of Bonus maximum before Committee maximum) after Committee discretion Director (% of base salary) discretion Committee discretion £000

Mike McCollum 135 49.3 18 31 Richard Portman 125 49.3 18 56 Steve Whittern 125 49.3 18 71 Andrew Judd 100 49.3 18 26

Mike McCollum’s annual bonus was scaled back pro rata to the period of service in 2020 to 1 May 2020.

Normally 20 per cent of any bonus earned is deferred in shares, for 2 years and this will apply for Mike McCollum’s 2020 bonus. However, for Richard Portman and Steve Whittern the Committee has used discretion to determine that the annual bonus will be payable 100 per cent in cash.

Determination of LTIP awards with performance periods ending in the year The LTIP awards made in 2018 were subject to a range of absolute share price performance targets (to be reduced by the value of dividends paid over the performance period) and subject to a financial performance underpin. These awards lapsed in full, as shown below: Share price target (closing 3 month average for FY20 year end) % vesting

less than 1550p – 1550p 25 1,950p or higher 100 594.32p closing average 3 month share price plus 40.12p of dividends paid –

2018 LTIP award Award value Director number of shares Vesting level £000

Mike McCollum 31,253 – – Richard Portman 15,150 – – Steve Whittern 19,320 – –

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Dignity plc Annual Report & Accounts 2020 75

LTIP awards granted in the year The terms of the LTIP award granted to the Executive Director of Funeral Operations on 22 December 2020 were as follows:

Face/maximum Number of LTIP value of awards % of award vesting at Executive awards at grant date*£ threshold Performance period

Andrew Judd 31,509 178,971 25 01.01.20 – 31.12.22

* Based on a share price on the date of grant on 22 December 2020 of 568 pence.

50 per cent of the 2020 award will vest subject to a range of relative total shareholder return performance against the companies comprising the FTSE SmallCap Index (excluding investment trusts) over the performance period commencing 1 January 2020. The vesting of this award is dependent on the following:

TSR relative to FTSE SmallCap companies Performance required % vesting

Below threshold Below median – Threshold Median 25 Stretch or above Upper quartile or above 100

The remaining 50 per cent of the award will be based on our Funeral Market Share in the final year of the performance period, 2022.

Funeral market share Growth above performance required in 2022 2019 baseline of 11.7% % vesting

Below threshold Below 12.5% – Threshold 12.5% 6.83% 25 Stretch or above 15 or above 28.2% 100

The Funeral Market Share measure is based on growth from the level of our Market Share in 2019 of 11.7 per cent and recognises that this follows several years of decline. The Funeral Market Share measure will be subject to a performance underpin which requires the Remuneration Committee to be satisfied that our underlying profitability is in line with our business plan over the performance period.

The Market Share will be calculated using the average of the 12 monthly Market Share figures for 2022 and independently verifiable using ONS external market figures. The Committee is satisfied that the target range is sufficiently stretching, particularly as this requires growth following several years of decline and the fact that the starting period for the average is based on monthly figures over the final year, and not just the final month or few months of the year (which would give longer to achieve the target, but would not be independently verifiable).

The award will vest on the third anniversary of grant. Clawback and malus provisions apply and there is a holding period requiring the net of tax value of shares to be held for two years after the awards vest. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 79

76 Dignity plc Annual Report & Accounts 2020 Report on Directors’ remuneration continued for the 52 week period ended 25 December 2020 Governance

Outstanding Long-Term Incentive Plan awards Details of the nil cost option awards, not yet vested and exercised, made under the LTIP are disclosed in the table below:

Share price Granted Lapsed Vested and Earliest date Latest date Award at date of grant As at during during exercised As at shares can be shares can be Director grant date (pence) 27.12.19 year year during year 25.12.20 acquired acquired

Andrew Judd 16.03.17(i) 2,455 1,000 – 1,000 – – 16.03.20 16.03.27 23.03.18(ii) 890 7,486 – – – 7,486 23.03.21 23.03.28 13.06.19(iii) 633.5 22,494 – – – 22,494 13.06.22 13.06.29 22.12.20(iv) 584 – 31,509 – – 31,509 22.12.23 22.12.30 Mike McCollum 16.03.17(i) 2,455 31,253 – 31,253 – – 16.03.20 16.03.27 23.03.18(ii) 890 31,253 – 7,814 – 23,439 23.03.21 23.03.28 13.06.19(iii) 633.5 80,741 – 47,099 – 33,642 13.06.22 13.06.29

Richard Portman 16.03.17(i) 2,455 15,150 – 15,150 – – 16.03.20 16.03.27 23.03.18(ii) 890 15,150 – – – 15,150 23.03.21 23.03.28 13.06.19(iii) 633.5 39,139 – – – 39,139 13.06.22 13.06.29

Steve Whittern 16.03.17(i) 2,455 19,320 – 19,320 – – 16.03.20 16.03.27 23.03.18(ii) 890 19,320 – – – 19,320 23.03.21 23.03.28 13.06.19(iii) 633.5 49,913 – – – 49,913 13.06.22 13.06.29

(i) Number of options derived based on the average mid-market share price for the previous 28 working days to 30 December 2016. Half of the share awards under the LTIP are subject to a comparative TSR performance condition against the constituents of the FTSE 350. Awards will only be released if the Group’s comparative TSR performance is equal or greater than the median level of performance over the performance period at which point 25 per cent of the award will be released with full vesting occurring for an upper quartile performance. Vesting occurs on a straight line basis between these points. The other half of the awards are based on EPS growth targets. (ii) Number of options derived based on the same number of shares as the prior year’s awards. The share price of 890 pence in the table above is at the grant date. Awards subject to a range of share price targets, from 1,500p to 1,950p for 25 per cent to 100 per cent vesting and a financial performance underpin. The 2019 awards will vest based on absolute TSR. Full vesting will require performance broadly equivalent to returning the share price to the level it was prior to the 19 January 2019 pricing announcement. (iii) Number of awards scaled back from usual policy of 150 per cent of salary, to 100 per cent of salary. The 2019 award is based on relative TSR compared to the FTSE SmallCap Index with a separate financial and strategic performance condition. (iv) Subject to TSR and Funeral Market Share performance conditions as set out on page 75 of this report. (v) Awards lapsed in respect of the awards granted to Mike McCollum in 2018 and 2019 relate to the scaling back of the awards pro rata for the service period.

The aggregate gain on the exercise of Long-Term Incentive Plan options by the continuing Directors in the period was £nil (2019: £nil).

Directors’ interest in shares The interests of the Directors (including those of their connected persons) in the share capital of Dignity plc at 25 December 2020 are set out below:

Number of Ordinary Shares

At 25 December 2020 (or date of cessation of employment if earlier)

At 25 December 2020 Legally owned Value of shares (or date of Subject to counting towards At 27 December cessation of Deferred performance Vested but proposed Percentage of 2019 employment Subject Annual Bonus conditions unexercised shareholding salary held as Legally owned if earlier) to SAYE Options under the LTIP under the LTIP guideline(1) shares(1) Andrew Judd n/a 3,460 – 1,245 54,003 – £28,340 14 Mike McCollum 126,845 126,845 – 13,129 111,994 17,437 £984,007 192 Richard Portman 50,000 50,000 – 5,158 39,139 8,431 £393,494 159 Steve Whittern 38,076 88,076 – 6,582 49,913 10,763 £669,113 211 Clive Whiley(2) 3,000 25,000 – – – – – – David Blackwood 7,154 n/a – – – – – – Jane Ashcroft 1,917 n/a – – – – – – Dean Moore n/a – – – – – – – Gillian Kent n/a – – – – – – – James Wilson 1,000 1,000 – – – – – –

(1) Based on the average share price of the last financial month of the year of 687.9 pence and includes legally owned shares plus the net of tax value (i.e. tax and national insurance at 47 per cent) of deferred bonus options and vested but unexercised LTIP awards. (2) Clive Whiley has a beneficial interest via Zodiac Executive Pension Scheme, of which he is the sole beneficiary, in 25,000 Dignity plc shares.

There has been no change in the interests set out above between 25 December 2020 and 17 March 2021.

Shareholding guideline The current shareholding guideline for the Executive Directors was not met and, accordingly, the Executive Directors will be required to retain at least 50 per cent of the net of tax value of shares at such time as future awards vest until the required guideline of 200 per cent of salary is achieved.

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Dignity plc Annual Report & Accounts 2020 77

Loss of office payments and payments to past Directors On 3 April 2020 the Company agreed with Mike McCollum that he should step down from the Board with immediate effect. He continued to be paid base salary, benefits and pension until 30 April and in accordance with Mike McCollum's service contract, the following payments have been or will be made:

• 12 monthly payments of £50,560 covering 12 months' base salary, pension and benefits from 1 May 2020. • The Remuneration Committee has used discretion to allow Life assurance and private medical insurance to continue for 12 months from 1 May 2020. • The Remuneration Committee has determined that good leaver treatment should apply to the 2020 annual bonus for, which was based on the original performance conditions, pro rata to 1 April 2020. 20 per cent of any annual bonus will be deferred in shares for two years. This bonus is noted above in the table of Directors’ Remuneration. • 2020 Deferred Bonus Plan awards granted in respect of the 2019 and 2020 annual bonus will vest at the normal time together with any dividend equivalent payments. • Outstanding Long-Term Incentive Plan awards granted in March 2018 and June 2019 over 23,439 and 33,642 shares respectively will be capable of vesting at the normal vesting date after three years, together with any dividend equivalent payments, subject to the achievement of the performance conditions and in each case will be scaled back pro rata for the proportion of the performance period that has elapsed to 1 April 2020. The 2 year post vest holding period will continue to apply to all vested awards. • Other vested but unexercised LTIP and deferred annual bonus awards, which are structured as nil cost options, may also be exercised. • A severance payment of £85,000 gross was paid to settle any potential claim for unfair dismissal, £30,000 paid immediately and the balance at £4,583 per month for the subsequent 12 months. • Clawback and malus provisions will continue after cessation of employment.

On 14 December 2020 the Company announced that it had agreed with Steve Whittern that he should resign and he ceased employment on 31 December 2020. In accordance with Steve Whittern’s service contract and agreed terms, the following payments have been or will be made:

• Continued payment of current base salary, benefits and pension from 15 December until 31 December 2020 (the date upon which employment terminated). This is included in the table of Directors’ remuneration in this report. • A payment in lieu of notice for the 12 month period from 1 January 2021 of £381,630 (representing base salary, car allowance, pension and life assurance premium). • A severance payment as compensation for loss of office of £30,000 (taking into account length of service, base salary and mitigation obligations). • Private medical insurance will continue until 31 December 2021 or until the date upon which full time employment with another employer is taken up. • The Remuneration Committee has determined that good leaver treatment should apply to the 2020 annual bonus, which was based on the original performance conditions. The Committee has used discretion to pay the bonus exclusively in cash. • Outstanding Long-Term Incentive Plan awards granted in March 2018 and June 2019 over 19,320 and 49,913 shares respectively will be capable of vesting at the normal vesting date after three years, together with any dividend equivalent payments, subject to the achievement of the performance conditions and in each case will be scaled back pro rata for the proportion of the performance period that has elapsed to 31 December 2020. The two year post vest holding period will continue to apply to all awards. • Other vested but unexercised LTIP and deferred annual bonus awards, which are structured as nominal cost options, may also be exercised. • Clawback and malus provisions will continue after cessation of employment.

On 14 December 2020 the Company also announced that it had agreed with Richard Portman that he should resign and he ceased employment on 31 December 2020. In accordance with Richard Portman's service contract and terms agreed, the following payments have been or will be made:

• Continued payment of current base salary, benefits and pension from 15 December until 31 December 2020 (the date upon which employment terminated). This is included in the table of Directors’ remuneration in this report. • A payment in lieu of notice for the 12 month period from 1 January 2021 of £303,140 (representing base salary, car allowance, pension and life assurance premium). • A severance payment as compensation for loss of office of £30,000 (taking into account length of service, base salary and mitigation obligations). • Private medical insurance to continue until 31 December 2021 or until the date upon which full time employment with another employer is taken up. • The Remuneration Committee has determined that good leaver treatment should apply to the 2020 annual bonus, which was based on the original performance conditions. The Committee has used discretion to pay the bonus exclusively in cash. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 81

78 Dignity plc Annual Report & Accounts 2020 Report on Directors’ remuneration continued for the 52 week period ended 25 December 2020 Governance

• Outstanding Long-Term Incentive Plan awards granted in March 2018 and June 2019 over 15,150 and 39,139 shares respectively will be capable of vesting at the normal vesting date after three years, together with any dividend equivalent payments, subject to the achievement of the performance conditions and in each case will be scaled back pro rata for the proportion of the performance period that has elapsed to 31 December 2020. The two year post vest holding period will continue to apply to all vested awards. • Other vested but unexercised LTIP and deferred annual bonus awards, which are structured as nominal cost options, may also be exercised. • Clawback and malus provisions will continue after cessation of employment.

Other than the amounts disclosed above, there are no other remuneration payments or payments for loss of office for these or any other Directors.

Relative importance of spend on pay between employee pay and distributions to shareholders The following table sets out the percentage change in dividends and overall spend on employee pay in the 2020 financial year compared with the prior year: 2020 2019 Change £m £m %

Dividends – 7.9 (100) Employee remuneration costs 116.4 107.4 8.4

Percentage change in Directors’ pay The table below shows the percentage change between 2019 and 2020 in the value of salary, benefits and annual bonus for each Director compared to that of the average employee on a full-time equivalent basis.

2019 vs 2020 % change % change in in salary/ taxable % change fees benefits in bonus

Chairman – – – CEO – (50) (75) Chief Financial Officer – – – Director of Corporate Services – 5 – David Blackwood n/a n/a n/a Jane Ashcroft n/a n/a n/a Dean Moore n/a n/a n/a Gillian Kent n/a n/a n/a All employees 2 – –

The Executive Director of Funeral Operations is not included in the table above as he was appointed a Director on 14 December 2020.

CEO pay ratios The Committee has decided to use Option A in the relevant regulations to calculate the Chief Executive Officer pay ratio.

This methodology was selected as the Committee believes this provides a more accurate and consistent calculation based on the information available at this time. The Committee will monitor investor guidance and evolving best practice which may move in favour of using Option A to calculate the ratios and will review its approach next year (restating any prior year figures, as appropriate).

The following table sets out the CEO pay ratio at the median, 25th and 75th percentile.

25th percentile 75th percentile Financial year Method pay ratio Median pay ratio

2020 Option A 33.45:1 18.19:1 22.54:1

The three employees used for comparison for 2020 are shown below:

Employees salary Total remuneration (£) (£)

Q 25 pay 17,380 17,965 Q 50 pay 21,190 21,325 Q 75 pay 26,337 26,662

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Dignity plc Annual Report & Accounts 2020 79

The pay ratios have been calculated in accordance with Option A. This methodology was selected as the Committee believes this provides the most accurate calculation. The full-time equivalent remuneration for FY20 was calculated for employees of Dignity as at 31 December 2020. Employees that joined the Company prior to this date have been grossed up to full time equivalent pay and any employee that left the Company prior to this date has been excluded. Part time employees have been grossed up to full time equivalents based on full time equivalent hours for the role. Total pay for employees includes salary, casual pay, allowances and variable pay.

The reward policies and practices for our employees, which the Remuneration Committee reviews, are appropriately cascaded from the Executive Directors’ remuneration policy and furthermore the Committee continues to monitor Group policies and practices to ensure they are appropriate, fair and aligned and support the culture of the business. Therefore, the Remuneration Committee is satisfied the median pay ratio is consistent with the Company’s pay, reward and progression policies for all employees.

Long-Term Total Shareholder Return Performance and CEO pay over this period The following graph shows the Company's TSR performance over the last ten financial years against the FTSE 350 index and the FTSE SmallCap Index. The FTSE 350 Index has been chosen as the Company has been a member of that Index until recently and the FTSE SmallCap Index has been chosen as it is now a member of that Index.

Ten Year Total Shareholder Return 400

300

200

Value (£) (Rebased) 100

0

Dec10 Dec 11 Dec 12 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 Dec 13 Dec 15 Dec 14

Dignity plc FTSE 350 Index FTSE SmallCap Index Source: Datastream (Thomson Reuters)

This graph shows the value, by 25 December 2020, of £100 invested in Dignity plc on 25 December 2010, compared with the value of £100 invested in the FTSE 350 Index and FTSE SmallCap Index on the same date.

The table below shows the total remuneration figure for the CEO over the same ten year period.

2020 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 Mike McCollum* Clive Whiley*

CEO single total figure of remuneration (£000) 917 2,081 2,217 2,426 2,440 2,372 966 1,010 733 238 400 Annual bonus pay-out relative to maximum (%) 100 100 100 100 100 100 – 58 18 18 n/a LTIP vesting (%) – 100 100 100 100 100 50 – – – n/a

*This represents the pro rata total remuneration for Mike McCollum to 3 April 2020 and Clive Whiley for the remainder of 2020 in his role as Executive Chairman.

Details of Directors' service contracts and letters of appointment Details of the service contracts of the Executive Directors and letters of appointment of the Non-Executive Directors are as follows:

Name Contract date Notice period

Andrew Judd 14 December 2020 6 months Clive Whiley 26 September 2019 3 months Gillian Kent 11 June 2020 3 months James Wilson 1 May 2019 3 months Dean Moore 11 March 2020 3 months

Non-Executive Directors will normally serve for two terms of three years which may be extended to three terms.

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80 Dignity plc Annual Report & Accounts 2020 Report on Directors’ remuneration continued for the 52 week period ended 25 December 2020 Governance

External directorships Clive Whiley is Chair of Mothercare plc, China Venture Capital Management Limited, First China Venture Capital Limited and Y-LEE Limited. The fees earnt are retained. Dean Moore is a Non-Executive Director of Cineworld plc and Volex plc and retains the fees for these appointments. Andrew Judd does not hold any external directorships.

Membership of the Remuneration Committee The Remuneration Committee currently comprises two independent Non-Executive Directors, Gillian Kent and Paul Humphreys who was appointed on 23 February, and Dean Moore, who was an independent NED before stepping into the role of Interim Chief Financial Officer and who remains independent in the view of the Board as he still receives a fixed fee and does not participate in any incentive plans. During 2020, the Committee was chaired by David Blackwood until the 2020 AGM and then Gillian Kent from the date of her appointment on 11 June 2020. Jane Ashcroft was a member of the Committee until she stepped down from the Board on 3 April 2020.

The Remuneration Committee members have no personal financial interest in matters to be decided, no potential conflicts of interests arising from cross directorships and no day-to-day involvement in running the business.

The Remuneration Committee determines and agrees with the Board, within formal terms of reference, the framework and policy of Directors’ and senior management’s remuneration. The Committee met four times during the year. At the start of the year the Committee determined the incentive payments for 2019 and the application of the remuneration policy for 2020. During the year the Committee considered the termination of employment arrangements for the departing Executive Directors and the remuneration package for the Executive Director of Funeral Operations, who was promoted to the Board on 14 December.

The Committee receives advice from several sources, namely:

• The Chairman, Chief Executive and Finance Director, who attend the Remuneration Committee by invitation, and the Company Secretary, who attends meetings as Secretary to the Committee. No individual takes part in discussions relating to their own remuneration and benefits. • Korn Ferry, who were appointed by the Committee as its independent advisers on 3 August 2018 following a tendering process. Korn Ferry report directly to the Committee Chair and are signatories of the Code of Conduct for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). Korn Ferry provides other consulting services on leadership development, but this is an entirely separate team independent from the team advising the Committee and the advice to the Committee is therefore considered independent. During 2020, total fees charged in the period by Korn Ferry in relation to advice to the Committee were £31,079.25 + VAT (2019: £74,751 + VAT) and were charged on a time spent basis.

Statement of shareholder voting at the AGM (Unaudited) Votes cast by proxy at the Annual General Meeting held on 11 June 2020 in respect of the Remuneration Report and at the AGM on 13 June 2019 in respect of the binding three year policy vote, are as shown below:

2020 AGM Remuneration Report

Total number Percentage of of votes votes cast

For 29,207,486 96.72 Against 991,481 3.28 Total votes cast 30,198,967 100

Abstentions 139,408 n/a

2019 AGM Remuneration Policy

Total number Percentage of of votes votes cast

For 17,956,750 98.14 Against 340,926 1.86 Total votes cast 18,297,676 100

Abstentions 13,416,745 n/a

On behalf of the Board

Gillian Kent Chair of the Remuneration Committee

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Dignity plc Annual Report & Accounts 2020 81 Directors’ report for the 52 week period ended 25 December 2020

The Directors present their report and the audited consolidated The Directors are responsible for keeping adequate accounting financial statements for Dignity plc and its subsidiaries for the records that are sufficient to show and explain the Company’s 52 week period ended 25 December 2020. transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and The company registration number of Dignity plc is 04569346. enable them to ensure that the financial statements and the Report on Directors’ Remuneration comply with the Companies Statement of Directors’ responsibilities Act 2006 and, as regards the Group financial statements, The Directors are responsible for preparing the Annual Report, Article 4 of the IAS Regulation. They are also responsible for the Report on Directors’ Remuneration and the financial safeguarding the assets of the Company and the Group and statements in accordance with applicable law and regulations. hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors The Directors are responsible for the maintenance and integrity have prepared the Group financial statements in accordance of the Group’s websites. Legislation in the United Kingdom with International Financial Reporting Standards adopted governing the preparation and dissemination of financial pursuant to Regulation (EC) No. 1606/2002 as it applies in statements may differ from legislation in other jurisdictions. the European Union and in accordance with international accounting standards in conformity with the requirements Each of the Directors, whose names and functions are listed of the Companies Act 2006 and the parent company financial on page 51 of this Annual Report, confirm that, to the best statements in accordance with United Kingdom Generally of their knowledge and belief: Accepted Accounting Practice including Financial Reporting Standard 101, Reduced Disclosure Framework (‘FRS 101’) • The Group financial statements, which have been prepared (United Kingdom Accounting Standards and applicable law). in accordance with IFRSs adopted pursuant to Regulation Under company law, the Directors must not approve the (EC) No. 1606/2002 as it applied in the European Union and financial statements unless they are satisfied that they give in accordance with international accounting standards in a true and fair view of the state of affairs of the Group and conformity with the requirements of the Companies Act 2006, the Company and of the profit or loss of the Group for give a true and fair view of the assets, liabilities, financial that period. In preparing these financial statements, the position and profit of the Group; and Directors are required to: • The Strategic Report on pages 1 to 43 of the Annual Report includes a fair review of the development and performance • Select suitable accounting policies and then apply them of the business and the position of the Group, together with a consistently; description of the principal risks and uncertainties that it faces. • Make judgements and accounting estimates that are reasonable and prudent; Responsibility statement of the Directors in respect of the • Present information, including accounting policies, in a Annual Report manner that provides relevant, reliable, comparable and The Directors confirm that to the best of their knowledge: understandable information; • Provide additional disclosures when compliance with the • The consolidated financial statements prepared in accordance specific requirements in IFRSs and in respect of the parent with IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 company financial statements, is insufficient to enable users as it applied in the European Union and in accordance with to understand the impact of particular transactions, other international accounting standards in conformity with the events and conditions on the Group and company financial requirements of the Companies Act 2006 give a true and fair position and financial performance; view of the assets, liabilities, financial position and profit of the Company and undertakings included in the consolidation • In respect of the Group financial statements state, whether as a whole; accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs adopted pursuant to • This Annual Report, including the Strategic Report, includes Regulation (EC) No. 1606/2002 as it applied in the European a fair review of the development and performance of the Union have been followed and in accordance with business and the position of the Company and undertakings international accounting standards in conformity with the included in the consolidation as a whole, together with a requirements of the Companies Act 2006, subject to any description of the principal risks and uncertainties that they material departures disclosed and explained in the Group face; and financial statements; • Having taken into account all matters considered by the Board • In respect of the Parent Company financial statements, and brought to the attention of the Board during the year, the state whether applicable UK Accounting Standards have been Directors consider that the Annual Report, taken as a whole, followed, subject to any material departures disclosed and is fair, balanced and understandable. The Directors believe explained in Parent Company financial statements that the disclosures set out in this Annual Report provide respectively; and the information necessary for shareholders to assess the Company’s performance, business model and strategy. • Prepare the financial statements on the going concern basis unless it is appropriate to presume that the Company and/or the Group will not continue in business. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 85

82 Dignity plc Annual Report & Accounts 2020 Directors’ report continued for the 52 week period ended 25 December 2020 Governance

Principal risks and uncertainties aptitudes and abilities. The Group endeavours, as far as is Operational, financial and emerging risks are considered on practicable, to treat disabled persons equally with others and pages 29 to 32. will also endeavour to help and accommodate persons who become disabled whilst working for Dignity. An assessment of the Group’s exposure to financial risks and a description of how these risks are managed are included in The Directors published gender pay data on the corporate note 2 to the consolidated financial statements. website www.dignityplc.co.uk during 2020 in accordance with the Equality Act 2010 (Gender Pay Gap) Regulations 2018. Share capital During the period, 8,089 Ordinary Shares of 12 48/143 pence Directors and their interests each were issued to satisfy share incentives which became Details of the Directors of the Company who were in office exercisable in the period. during the period and up to the date of signing the financial statements are shown in the Report on Directors’ The issued share capital of Dignity plc at 25 December 2020 Remuneration on pages 76 to 79. consisted of 50,020,483 Ordinary Shares of 12 48/143 pence each. All the Ordinary Shares carry the same rights and In accordance with the July 2018 UK Corporate Governance obligations. There are no other class or type of share in issue. Code, at the AGM, all Directors will retire as Directors of the Company and, being eligible, offer themselves for election A special resolution passed at the last AGM on 11 June 2020 or re-election at the AGM on 23 June 2021. gives Dignity plc the authority to purchase up to 5,000,894 Ordinary Shares of 12 48/143 pence each at not less than During the period, the Company maintained liability insurance nominal value and not more than five per cent above the for its Directors and Officers to a value of £90 million. The average middle market quotation for the preceding five Directors of each of the Company’s subsidiaries have the business days. At the same meeting the Company was also benefit of an indemnity provision in the Company’s Articles given authority to allot Ordinary Shares up to an aggregate of Association. The indemnity provision, which is a qualifying nominal value of £4,112,623 of which up to £308,447 may be third party indemnity provision as defined by Section 234 of for cash. These authorities will expire at the conclusion of the the Companies Act 2006, was in force throughout the period next AGM on 23 June 2021. It is the intention of the Directors and is currently in force. to seek renewal of these authorities at that AGM. There are no restrictions at the period end on the transfer of securities. Health and Safety policy The Group’s operations are designed at all times in such a way Results as to ensure, so far as reasonably practicable, the health, safety The results for the period are set out in the Consolidated and welfare of all of our employees and all other persons who Income Statement on page 92. The Group’s loss before tax may attend our premises. This is discussed in the Corporate amounted to £19.6 million (2019: Profit of £44.1 million). and social responsibility report on page 38.

Dividends Corporate Social Responsibility Although the Group has significant cash resources at hand and Maintaining the quality of the environment in which we all continues to be cash generative, in order to maintain maximum live is an important concern for the Group. This is discussed flexibility and liquidity during the transformation, the Board in the Corporate and social responsibility report on page 40 has concluded that it is prudent to temporarily cease dividend alongside other social and ethical considerations. payments. The Group has an established track record of returning cash to shareholders at appropriate times over many Going concern years and once the current uncertain competitive environment In order to assess the appropriateness of the application of becomes clearer, it anticipates resuming dividend payments or the going concern principle in this Annual Report, the Directors returning excess cash to shareholders. have considered the principal risks and uncertainties and financial position of the Dignity Group. Employment policies During the period, the Group has maintained its obligations to The Group has carried out a detailed going concern analysis effectively communicate and involve employees in its affairs. and considered the ongoing impact of the COVID-19 pandemic, Methods of communication used include an Employee Forum, on these financial statements. Full details of this analysis are an in-house magazine, team talks, regular bulletins both set out in Note 1 to the financial statements. national and regional, and management briefings. This is discussed in more detail in the Corporate and social Following consideration of the base case forecasts, and the responsibility report on pages 35 to 41. range of downside stress test scenarios, the Directors have a reasonable expectation that the Group has adequate resources Employment policies are designed to provide equal to continue in operational existence for the foreseeable future opportunities irrespective of age, sexuality, colour, ethnic or and for a period through to 31 March 2022. The Directors national origin, religion, nationality, sex or marital status. Full formally considered this matter at the Board meeting held on consideration is given to the employment, training and career 5 March 2021. For these reasons, they continue to adopt the development of disabled persons, subject only to their going concern basis for preparing the Annual Report.

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Dignity plc Annual Report & Accounts 2020 83

Post balance sheet events The Takeover Directive Regulation and the funeral plan market The Group has one class of voting share capital, Ordinary HM Treasury had previously announced that prepaid funeral Shares. All of the shares rank pari passu. There are no special plans would be subject to regulation by the Financial Conduct control rights in relation to the Group’s shares. The rules Authority (‘FCA’). On 2 March 2021, the FCA published their governing the appointment and replacement of Board consultation paper with their proposed approach to regulation. members and changes to the Articles of Association accord with usual English company law provisions. The Board has authority If the FCA rules are enacted in the way they are currently to purchase its own shares and is seeking renewal of that drafted they will have a profound impact on both the wider power at the forthcoming AGM within the limits set out in the industry and Dignity. We welcome the opportunity to work notice of that meeting. There are no significant agreements to closely with the FCA over the coming months to ensure the which the Group is party which take effect, alter or terminate rules provide the much needed consumer protection, but also in the event of change of control of the Group. supporting the FCA in their understanding of the potential unintended consequences on the industry as a result of the Corporate Governance Statement current drafting. The information that fulfils the requirements of a corporate governance statement in accordance with rule 7.2 of the Tax rate change Disclosure and Transparency Rules can be found in this In the budget on 3 March 2021 by HM Government, legislation Directors’ Report and in the Directors’ Statement on Corporate to increase the main rate of corporation tax from 19 per cent Governance on pages 53 to 57, which is incorporated by to 25 per cent from 1 April 2023 was announced. This will be reference. reflected in the Group’s financial results once substantively enacted. Strategic Report The Strategic Report on pages 1 to 43 has been approved Requisition Notice by the Board. On 11 March 2021, Dignity plc received a requisition notice pursuant to section 303(1) of the Companies Act 2006 requiring By order of the Board that the Board convenes a general meeting of shareholders for the purposes of considering and, if thought fit, approving

resolutions to remove the existing Executive Chairman, Clive

Whiley as a Director and appoint Gary Channon as an Executive Tim George Director. The Requisition Notice was delivered by Phoenix UK Company Secretary Fund Limited, the Company's largest shareholder. 17 March 2021 The Phoenix UK Fund is managed by Phoenix Asset Management Partners and Mr Channon is the founder and chief investment officer of Phoenix Asset Management Partners.

Independent Auditors and disclosure of information to Auditors A resolution for the re-appointment of Ernst & Young LLP as auditors will be proposed at the forthcoming AGM.

In the case of each of the persons who are Directors at the time when the report is approved, the following applies:

• So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • The Directors have taken appropriate steps to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

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84 Dignity plc Annual Report & Accounts 2020 Independent auditors’ report to the members of Dignity plc for the 52 week period ended 25 December 2020 Financial statements

Opinion In our opinion: • Dignity plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 25 December 2020 and of the group’s profit for the 52 week period then ended; • the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No.1606/2002 as it applies in the European Union; • the parent company financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Dignity plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the 52 week period ended 25 December 2020 which comprise:

Group Parent company • Consolidated balance sheet as at 25 December 2020 • Balance sheet as at 25 December 2020 • Consolidated income statement for the 52 week period ended • Statement of changes in equity for the 52 week period ended 25 December 2020 25 December 2020 • Consolidated statement of comprehensive income for the 52 week period • Statement of cash flows for the 52 week period ended 25 December 2020 ended 25 December 2020 • Related notes C1 to C9 to the financial statements including a summary • Consolidated statement of changes in equity for the 52 week period of significant accounting policies ended 25 December 2020 • Consolidated statement of cash flows for the 52 week period ended 25 December 2020

• Related notes 1 to 35 to the financial statements, including a summary of significant accounting policies

The financial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 and, as regards to the group financial statements, International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and as regards the parent company financial statements, as applied in accordance with section 408 of the Companies Act 2006.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included the following procedures:

• Understanding and walking through management’s process for and controls related to assessing going concern including discussion with management to ensure all key factors were taken into account. • Read and considered the directors’ going concern assessment covering the period through to 31 March 2022, including their assessment of the risks and impact of COVID-19, to understand the key assumptions upon which it was based and testing the model integrity for clerical accuracy. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 88

Dignity plc Annual Report & Accounts 2020 85

• As described in Notes 1 and 18 to the financial statements the company has in issue Class A Notes with an outstanding principal of £185,784,000 and Class B Notes with an outstanding principal of £356,402,000 that are listed on the Irish Stock Exchange. The terms and conditions for these notes is covered by an Issuer/Borrower Loan Agreement (‘IBLA’). We inspected the debt service cash requirement (‘DSCR’) definition as per the IBLA to confirm the basis of the covenant calculation. • Tested compliance with the EBITDA:DSCR covenant in the financial reporting period as follows:

– Recalculated the EBITDA for the Securitisation Group and assessed whether it has been correctly calculated in accordance with the definition of EBITDA provided in the IBLA; – Agreed the DSCR to the underlying audited interest and principal repayment schedules; and – Recalculated the EBITDA:DSCR ratio to confirm the company is compliant with this ratio during the period and at the period end date.

• Tested the forecast compliance with the EBITDA:DSCR covenant ratio as follows:

– Agreed the DSCR to the interest and principal repayment schedules; – Obtained management’s forecast through 31 March 2022 which was formed using the 2021 budget as a basis and the 2022 plan, which was presented to and approved by the Board, having given due consideration to changes in financial performance in respect of expected number of deaths, market share and funeral mix (between lower cost ‘simple’ and higher cost ‘full’ service funerals); – Tested the underlying assumptions and data upon which the budget and forecast were based to ensure their reasonableness, by; • assessing the accuracy of management’s historical budgeting (pre COVID-19); • comparing forecast deaths to independent information from the Office for National Statistics (‘ONS’); • assessing cost saving initiatives against management plans, considering both the timing and quantum of achievability; and • assessing current trading performance by inspecting the January 2021 period end management accounts and additional financial information available for February 2021 in addition to making inquiries of management to identify any issues with current trading, average incomes, funeral mix, debtor recoverability and availability of coffin stock; – Obtained the sensitivity testing performed in the director’s going concern assessment. We checked the calculations for accuracy and evaluated the underlying assumptions related to average price, market share and death rate by comparison to the trend in actual deaths, funeral numbers performed and revenues achieved since the COVID-19 outbreak and, where relevant, statistics published by the ONS; – Performed additional stress testing to model the impact of further severe, but plausible scenarios to assess their impact upon the EBITDA:DSCR covenant ratio; – Performed a reverse stress test to evaluate the level of downturn in performance that would result in a breach of the EBITDA:DSCR covenant; and – For mitigations modelled we assessed whether management had the ability to affect these in the time period involved. • Whilst not forecast in any scenario, we understood the implications of a breach of the EBITDA:DSCR covenant ratio as follows:

– Reviewed the directors’ assessment of the implication of a breach of the covenant ratio and evaluated this assessment in the context of the terms of the IBLA; and – Assessed the completeness and accuracy of the explanation provided in note 1 to the financial statements describing the impact of a breach of the covenant ratio. • Assessed the liquidity of the group, including both its current cash resources and the availability of further facilities, should they be required, in order to meet the debt service payments falling due over a period through to 31 March 2022. • Inquired of management as to their knowledge of events or conditions beyond the period of their assessment that may cast significant doubt on the entity's ability to continue as a going concern and compared their response to forecast market conditions by the ONS, the profile of payments and covenant requirements of the IBLA and other information that could impact the funeral and crematoria sectors, notably the Competition and Markets Authority report issued in December 2020. • Assessed the going concern disclosures in the financial statements to ensure they are in accordance with the revised ISA UK 570 going concern auditing standard. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 89

86 Dignity plc Annual Report & Accounts 2020 Independent auditors’ report to the members of Dignity plc continued for the 52 week period ended 25 December 2020 Financial statements

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern from when the financial statements are authorised for issue through 31 March 2022.

In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern.

Overview of our audit approach

Audit scope • We performed an audit on the consolidated financial records of the group to the materiality and performance materiality described below.

Key audit matters Group • Revenue recognition – risk of management override.

• Carrying value of goodwill, other intangible assets, property, plant and equipment and right-of-use assets.

• Accounting for pre-need Trusts level 3 (illiquid) investments. Company

• Carrying value of subsidiary investments.

Materiality • Overall group materiality of £1.2 million which represents 4.6% of underlying profit before tax (IFRS profit before tax, adding back net non-underlying costs (excluding the add back for amortisation of acquisition related intangibles)).

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 90

Dignity plc Annual Report & Accounts 2020 87

Risk Our response to the risk Key observations communicated to the Audit Committee

Revenue recognition – risk of • We understood the group’s revenue recognition policies and how they are We have not identified any management override (Revenue 2020: applied, including the relevant controls, and performed a walkthrough to evidence of management £357.5 million, 2019: £338.9 million) validate our understanding; override through • In respect of the funerals and crematoria segments, which together form inappropriate journal entries Given investor focus on the Group’s in respect of the amount underlying revenue (2020: £314.1 91% of the group’s underlying revenue, we analysed the whole population of transactions from revenue recognition through to invoice settlement. Where of revenue recorded in million, 2019: £301.3 million) we the period. consider there to be a risk in relation the postings did not follow our expectation, we investigated and understood the characteristics of these entries and tested a sample to assess their validity to the manipulation by group by agreeing the transactions back to source documentation; management of the amount of revenue recorded. Management reward and • We reconciled the aggregate underlying revenue amounts extracted from the incentive schemes based on achieving sales invoicing systems to revenue recorded in the general ledger and traced profit targets may also place pressure material reconciling items to supporting documentation; on management to manipulate • We tested journal entries posted to revenue accounts, applying parameters revenue recognition. designed to identify entries that were not in accordance with our expectations. This included analysing and selecting journals for testing which appeared Therefore, there is a risk that central unusual in nature either due to size, preparer or being manually posted. To management may override controls assess their validity, we verified the journals to originating documentation; to intentionally misstate revenue transactions through inappropriate • We performed detailed testing over the adjustments to revenue made as a result of the consolidation of the Trusts and the IFRS 15 adjustment to manual journal entries, including those recognise revenue in respect of pre-need disbursements and those services arising from consolidation of the Trusts. performed by non-Dignity funeral directors in the period, where the group is Refer to the Accounting policies, Note 1 acting as principal in the arrangement. This testing compared the outputs of and Note 3 of the Consolidated Financial management’s deferred income liability model to the journals posted; and Statements and the Audit Committee • We performed analytical procedures to compare revenue recognised with report (pages 58 to 61). expectations based on past experience, management’s forecasts and, where possible, external market data in respect of the numbers of deaths in the period, assessed any contrary information and obtained corroborative evidence to support divergences from our expectations.

Carrying value of goodwill, other • We examined management’s methodology together with their models We consider the group’s intangible assets, property, plant and for assessing the valuation of goodwill, other intangible assets and property, conclusions in respect of equipment and right-of-use assets plant and equipment balances to understand the composition of management’s impairment of intangible (2020: £660.5 million, 2019: £624.4 future cash flow forecasts and the process undertaken to prepare them. and tangible assets are million), net of a £44.0 million This included confirming the underlying cash flows were derived from the appropriate, and that the impairment of funeral segment board approved budgets and assessing the identified CGUs for completeness. £28.7 million impairment of goodwill and trade names (2019: £6.8 We also re-performed the calculations in the model to test the mathematical funeral segment goodwill and million impairment of trade names) integrity; £15.3 million impairment of • In comparison to the requirements of IAS 36 on impairment and giving trade names are fairly stated. The group has a significant value due consideration to management’s business model, we understood the The impairment disclosures of goodwill, other intangible assets, methodology applied by management in performing its impairment tests are in accordance with IAS 36. including trade names, property plant of goodwill and trade names for the funeral segment; and equipment and right-of-use assets • We tested the key inputs to management’s impairment model by: recognised on the balance sheet. – analysing the historical accuracy of budgets (pre COVID-19) to actual As outlined in the strategic report the results to determine whether forecast cash flows are reliable based on group has faced a challenging year past experience; arising from continued changes in the funeral market and an increased – assessing the discount rate used by obtaining the underlying data used number of simple (rather than full in the calculation and benchmarking it against an EY range derived from comparable organisations and market data, involving EY internal specialists service) funerals due to COVID-19 to assist us with this assessment; which has lowered average incomes. – reconciling the forecast used in the CGU impairment models for 2021 and Despite the increased volumes, the beyond to the scenario analysis prepared for use elsewhere in the group, group has experienced an overall e.g., the going concern review; and decline in underlying operating profit from £63.3 million in 2019 to £55.7 – challenging whether the forecast growth rates have been appropriately adjusted to reflect the group’s strategy and the changes experienced in the million in 2020. funeral market, together with comparing them to observable market data. Therefore, there is a risk that goodwill • We performed sensitivities on the group’s forecasts by incorporating and the group’s cash generating units reasonable possible changes in key assumptions including EBITDA growth (‘CGUs’), in particular the funeral services rates and the discount rate and assessed the decline in headroom/change segment and the related trade name in impairment; CGUs, may not achieve the anticipated • Where CGUs were not impaired, we calculated the degree to which the business performance to support their key inputs and assumptions would need to fluctuate before an impairment respective carrying values. was triggered and considered the likelihood of this occurring; and Judgement is required in forecasting • We audited the disclosures in note 9 against the requirements of IAS 36 the future cash flows of each CGU, Impairment of Assets. determination of the long-term growth rates applied to these cash flows, together with the rate at which they are discounted. Refer to the Accounting policies, note 1, and note 9 of the Consolidated Financial Statements and the Audit Committee report (pages 58 to 61). V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 91

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Risk Our response to the risk Key observations communicated to the Audit Committee

Valuation of pre-need Trusts level 3 • We understood the group policy in relation to financial assets held by The carrying value of the Level (illiquid) investments (2020: £49.9 the Trusts, obtained the breakdown of investments and performed the 3 Trust assets is fairly stated. million out of total Trust financial following procedures: The related disclosures are in assets of £967.1 million, 2019: Existence accordance with IFRS except £40.1 million out of £947.5 million) for the omission of certain • For the investments held at the balance sheet date we validated the existence Certain assets held by the pre-need IFRS 13 disclosures related to of these assets by directly obtaining confirmation from the custodians of the valuation sensitivity as this Trusts require a level of estimation in number of units held. We reconciled these to the statements that we obtained assessing their valuation, specifically the information was not available directly from the fund manager. to management (as explained private (illiquid) investment fund which in note 23). are classed as Level 3 assets. Valuation The valuation of these assets is • We obtained and reviewed the ISAE 3402 SOC-1 Type II report for the third dependent on unobservable market party investment management services for the year to 30 September 2020 inputs. Given there is no active market with a bridging letter to 31 December 2020. This report concluded on the price for this investment, nor are the suitability of the design and operating effectiveness of controls over the valuation of assets held by the fund. Controls over valuation were assessed audited financial statements at as effective. December 2020 for the private (illiquid) investment fund available, and given the • We independently built an expectation of the valuation as at 25 December current volatility in the capital markets, 2020 having considered the fund monthly management accounts (directly there is a risk that the investment value obtained from the fund manager) for December 2020 and the level of recorded is inappropriate. investment units held by the Trusts as obtained directly from the asset custodian. Refer to the Accounting policies, note 1, • Our assessment involved independently calculating an expectation of the and note 14 of the Consolidated price at 25 December 2020, derived using an appropriate publicly available Financial Statements and the Audit benchmark (considering the nature and geography of the investments in the Committee report (pages 58 to 61). fund) and by performing a variance analysis between the December 2017, 2018 and 2019 management accounts with audited financial statements of the funds for the same years. We then compared this expectation with the actual price at 25 December 2020, as confirmed by the fund manager. • We reviewed the financial instruments and fair value disclosures in the group’s financial statements and assessed whether they met the requirements of IFRS 7 and IFRS 13.

Carrying value of subsidiary • Management tested the parent company investment in subsidiaries for Based on our procedures, investments (2020: £151.3 million, potential impairment using a model which adjusts the value in use established we have not identified any 2019: £149.9 million) as part of the goodwill, other intangible assets and property, plant and equipment impairment in the carrying impairment assessment (see analysis above) for net debt, pensions and value of investments. The parent company holds investments cashflows and assets associated with the Trusts; in subsidiaries with a significant carrying With minimal headroom, the value. • We tested the mathematical integrity of the calculation performed; carrying value is sensitive to reasonable possible changes As at 25 December 2020, the market • We examined management’s methodology and model for assessing the valuation of investments to understand the composition of management’s in key assumptions. capitalisation of Dignity plc was lower future cash flow forecasts and the process undertaken to prepare them. In than the net assets of the company, addition to the steps noted above in respect of the value in use established this is an indicator of impairment. for goodwill, other intangible assets and property, plant and equipment Further, as explained above, the group impairment assessment purposes, we vouched each of the adjustments has faced a challenging year arising made to amounts recorded elsewhere in the financial statements or from continued changes in the funeral underlying accounting records; and market, COVID-19 driven increase in • We audited the related disclosures with reference to the requirements funeral volume which has been of IAS 36. countered by the delivery of more simple as opposed to full price funerals, thereby reducing underlying profitability. Therefore, there is a risk that the subsidiaries may not achieve the anticipated business performance to support their respective carrying values. Judgement is required in forecasting the future cash flows of the subsidiary investments and the Trusts, determination of the long-term growth rates applied to these cash flows, together with the rate at which they are discounted. Refer to the Accounting policies, note C1 and Note C2 of the Parent Company Financial Statements and the Audit Committee report (pages 58 to 61).

In the prior period, our auditor’s report included a key audit matter in relation to the re-assessment of judgement regarding the extent of the group’s power over the two principal pre-need trusts, being Trust for Age UK Plans (‘Age UK’) and National Funeral Trust (‘NFT’), together the ‘Trusts’ resulting in consolidation and significant additional complexity to the financial statements. In the current period, we updated our identified risk, removing the reassessment of judgement resulting in consolidation of Trusts and the evaluation of the Trust liabilities on initial consolidation, but keeping unchanged the risk around the complexity of pre-need Trusts level 3 (illiquid) investment as shown above. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 92

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An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and performance materiality determine our audit scope. Taken together, this enables us to form an opinion on the consolidated financial statements. The group finance function operates from head office and there are common financial systems, processes and centralised controls covering all of its operations and individual operating locations. The audit of the group is undertaken by one audit team and the group audit has been performed on the consolidated financial records to the materiality and performance materiality described below. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £1.2 million (2019: £1.5 million), which is 4.6% of underlying profit before tax (IFRS profit before tax, adding back net non-underlying costs (excluding the add back for amortisation of acquisition related intangibles)) (2019: 4.6% calculated on the same basis). We believe that this measure of underlying profit before tax is the most appropriate measure of the financial performance of the group on which to base audit materiality. In evaluating management’s adjustment to derive underlying operating profit, we exclude the add back of the £4.6 million amortisation of acquisition related intangibles as this is a recurring item. Further, we have excluded from our materiality calculation the additional net profit of £8.2 million achieved by the group as a result of the consolidation of the pre-need Trusts. We set materiality on a basis that is comparable with that determined in previous years and in line with how the trading business is operated. The exclusion of the impact of the consolidation of the pre-need trusts is consistent with how management prepare their underlying results and communicate financial performance to investors.

Starting basis • Loss before tax as reported in the financial statements – £19.6 million

• Adjustment for non-underlying items (excluding acquisition related amortisation of £4.6 million) – £53.8 million Adjustments • Exclude the profit impact of consolidation of the Trusts – £(8.2) million

• Underlying profit before tax – £26.1 million Materiality • Materiality calculated at 4.6% – £1.2 million

We determined materiality for our audit of the standalone parent company financial statements to be £4.7 million (2019: £4.6 million), which is 1% (2019: 1%) of equity. Equity is the most appropriate measure given the parent company is an investment holding company with no revenue. The materiality determined for the standalone parent company financial statements exceeds the group materiality as it is determined on a different basis given the nature of the operations. For the purposes of the audit of the group financial statements, our procedures, including those on balances in the parent company, are undertaken with reference to the group materiality and performance materiality set out in this report. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was retained at 50% (2019: 50%) of our materiality, being £0.6 million (2019: £0.8 million). Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.1 million (2019: £0.1 million), which is set at 5% of materiality (to the nearest £0.1 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report set out on pages 1 to 83 and 156 to 164, including the Strategic Report set out on pages 1 to 43, Governance set out on pages 44 to 83 and Other Information set out on pages 156 to 164, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 93

90 Dignity plc Annual Report & Accounts 2020 Independent auditors’ report to the members of Dignity plc continued for the 52 week period ended 25 December 2020 Financial statements

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Corporate Governance Statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: • Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 82; • Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is appropriate set out on page 33; • Directors’ statement on fair, balanced and understandable set out on page 81; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 82; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 55 and 56; and • The section describing the work of the audit committee set out on pages 58 to 61. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 81, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 94

Dignity plc Annual Report & Accounts 2020 91

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. • We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and UK Corporate Governance Code 2018) and the relevant tax compliance regulations in the UK. In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules of the UK Listing Authority, and those laws and regulations relating to occupational health and safety and data protection. • We understood how the group is complying with those frameworks by making enquiries of management, internal audit and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes, papers provided to the Audit Committee and any correspondence received from regulatory bodies. • We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with management to understand where it considered there was susceptibility to fraud. We also considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts. We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from material misstatements arising from fraud. • Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved: journal entry testing, with a focus on manual journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of group management, internal audit; and focused testing, as referred to in the key audit matters section above. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address • Following the recommendation from the audit committee, we were appointed by the company on 13 June 2020 to audit the financial statements for the 52 weeks ended 25 December 2020 and subsequent financial periods. • The period of total uninterrupted engagement including previous renewals and reappointments is seven years, covering the periods ending 26 December 2014 to 25 December 2020. • The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting the audit. • The audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Adrian Roberts (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Birmingham 17 March 2021 Notes: 1. The maintenance and integrity of the Dignity plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 92 Dignity plc Annual Report & Accounts 2020

Consolidated income statement for the 52 week period ended 25 December 2020 Financial statements

52 week period 52 week period ended ended 25 December 27 December 2020 2019 restated Note £m £m

Revenue 3 357.5 338.9 Cost of sales ( 1 7 7 . 3 )‌‌ (161.7)‌‌

Gross profit 180.2 177.2 Administrative expenses ( 1 6 4 . 3 )‌‌ (132.4)‌‌

Operating profit 3 15.9 44.8 Finance costs 4 ( 2 9 . 8 )‌‌ (25.8)‌‌ Finance income 4 0.1 0.2 Share of loss and impairment in respect of associated undertakings 12 – (6.0)‌‌ Deferred revenue significant financing 4 (53.1)‌‌ (54.1)‌‌ Remeasurement of financial assets held by the Trusts and related income 4 47.3 85.0

(Loss)/profit before tax 5 ( 1 9 . 6 )‌‌ 44.1 Taxation 6 ( 5 . 9 )‌‌ (13.5)‌‌

(Loss)/profit for the period attributable to equity shareholders 3 ( 2 5 . 5 )‌‌ 30.6

(Loss)/earnings per share for profit attributable to equity shareholders – Basic (pence) 8 (51.0)p 61.2p – Diluted (pence) 8 (51.0)p 61.2p

Prior year comparatives have been restated due to a prior year adjustment in relation to taxation. See page 96 for further details.

The results for the 52 week period to 25 December 2020 reflect the impact of adopting IFRS 16, Leases. Comparatives in respect of the 2019 reporting periods have not been restated in this respect as permitted under the specific transition provisions of the standard. See note 35 for details.

The alternative performance measures included within the Annual Report present information on a comparable basis with that presented in prior periods.

Consolidated statement of comprehensive income for the 52 week period ended 25 December 2020

52 week period 52 week period ended ended 25 December 27 December 2020 2019 restated Note £m £m

(Loss)/profit for the period ( 2 5 . 5 )‌‌ 30.6 Items that will not be reclassified to profit or loss Remeasurement loss on retirement benefit obligations 29 ( 1 1 . 7 )‌‌ (1.8)‌‌ Tax credit on remeasurement on retirement benefit obligations 6 2.2 0.3 Restatement of deferred tax for the change in UK tax rate 6 0.5 –

Other comprehensive loss (9.0)‌‌ (1.5)‌‌

Comprehensive (loss)/income for the period ( 3 4 . 5 )‌‌ 29.1

Attributable to: Equity shareholders of the parent ( 3 4 . 5 )‌‌ 29.1

Prior year comparatives have been restated due to a prior year adjustment in relation to taxation. See page 96 for further details.

The results for the 52 week period to 25 December 2020 reflect the impact of adopting IFRS 16, Leases. Comparatives in respect of the 2019 reporting periods have not been restated in this respect as permitted under the specific transition provisions of the standard. See note 35 for details. Dignity plc Annual Report & Accounts 2020 93

Consolidated balance sheet as at 25 December 2020

25 December 27 December 2020 2019 restated Note £m £m

Assets Non-current assets Goodwill 9 203.9 232.6 Intangible assets 9 120.5 140.5 Property, plant and equipment 10 240.9 251.3 Right-of-use asset 11 95.2 – Financial and other assets 13 10.7 18.2 Financial assets held by the Trusts 14 967.1 947.5 Deferred commissions 20 101.3 96.8 Deferred tax asset 22 20.3 14.0

1,759.9 1,700.9

Current assets Inventories 15 9.0 7.9 Trade and other receivables 16 30.0 32.4 Deferred commissions 20 7.6 7.3

Cash and cash equivalents – Trading Group 73.6 57.9 Cash and cash equivalents – held by the Trusts 21.6 15.5

Cash and cash equivalents 17 95.2 73.4

141.8 121.0

Total assets 1,901.7 1,821.9

Liabilities Current liabilities Financial liabilities 18 15.1 9.6 Trade and other payables 19 68.7 61.6 Lease liabilities 18 7.3 – Current tax liabilities 8.7 6.0 Contract liabilities 20 95.5 95.5 Provisions for liabilities 21 2.4 2.0

197.7 174.7

Non-current liabilities Financial liabilities 18 526.6 542.3 Other non-current liabilities 19 2.1 2.0 Lease liabilities 18 81.2 – Contract liabilities 20 1,222.0 1,209.1 Provisions for liabilities 21 9.5 9.3 Retirement benefit obligation 29 36.6 26.0

1,878.0 1,788.7

Total liabilities 2,075.7 1,963.4

Shareholders’ deficit Ordinary share capital 24 6.2 6.2 Share premium account 12.7 12.5 Capital redemption reserve 141.7 141.7 Other reserves ( 3 . 0 )‌‌ (4.0)‌‌ Retained earnings ( 3 3 1 . 6 )‌‌ (297.9)‌‌

Total deficit ( 1 7 4 . 0 )‌‌ (141.5)‌‌

Total deficit and liabilities 1,901.7 1,821.9

Prior year comparatives have been restated due to a prior year adjustment in relation to taxation. See page 96 for further details. The balance sheet as at 25 December 2020 reflects the impact of adopting IFRS 16, Leases. Comparatives in respect of the 2019 reporting periods have not been restated in this respect as permitted under the specific transition provisions of the standard. See note 35 for details. The alternative performance measures included within the Group’s consolidated financial statements present information on a comparable basis. The financial statements on pages 92 to 143 were approved by the Board of Directors on 17 March 2021 and were signed on its behalf by:

C P Whiley, Executive Chairman D R Moore, Interim Chief Financial Officer 94 Dignity plc Annual Report & Accounts 2020

Consolidated statement of changes in equity for the 52 week period ended 25 December 2020 Financial statements

Ordinary Share Capital share premium redemption Other Retained Total capital account reserve reserves earnings equity £m £m £m £m £m £m

Shareholders’ equity as at 28 December 2018 6.2 12.4 141.7 (5.1)‌‌ (319.1)‌‌ (163.9)‌‌ Profit for the 52 weeks ended 27 December 2019 – – – – – 34.9 34.9 as originally presented Impact of corporate interest restriction – – – – (4.3)‌‌ (4.3)‌‌ disallowance – prior year adjustment Remeasurement loss on retirement benefit – – – – (1.8)‌‌ (1.8)‌‌ obligations Tax on retirement benefit obligations – – – – 0.3 0.3

Total comprehensive income – restated – – – – 29.1 29.1 Effects of employee share options – – – 1.1 – 1.1 Tax on employee share options – – – 0.1 – 0.1 Proceeds from share issue(1) – 0.1 – – – 0.1 Gift to Employee Benefit Trust – – – (0.1)‌‌ – (0.1)‌‌ Dividends (note 7) – – – – (7.9)‌‌ (7.9)‌‌

Shareholders’ equity as at 27 December 2019 – 6.2 12.5 141.7 (4.0)‌‌ (297.9)‌‌ (141.5)‌‌ restated Adjustment on initial application of IFRS 16 on – – – – 0.8 0.8 28 December 2019 (note 35) Loss for the 52 weeks ended 25 December 2020 – – – – (25.5)‌‌ ( 2 5 . 5 )‌‌ Remeasurement loss on retirement benefit – – – – (11.7)‌‌ ( 1 1 . 7 )‌‌ obligations Tax on retirement benefit obligations – – – – 2.2 2.2 Restatement of deferred tax for the change in UK – – – – 0.5 0.5 tax rate

Total comprehensive loss – – – – (33.7)‌‌ ( 3 3 . 7 )‌‌ Effects of employee share options – – – 1.2 – 1.2 Proceeds from share issue(2) – 0.2 – – – 0.2 Gift to Employee Benefit Trust – – – (0.2)‌‌ – ( 0 . 2 )‌‌

Shareholders’ equity as at 25 December 2020 6.2 12.7 141.7 ( 3 . 0 )‌‌ ( 3 3 1 . 6 )‌‌ ( 1 7 4 . 0 )‌‌

(1) Relating to issue of 3,455 shares under 2016 DAB scheme. (2) Relating to issue of 7,745 shares under 2017 DAB scheme and 344 issued under the 2019 SAYE scheme.

Prior year comparatives have been restated due to a prior year adjustment in relation to taxation. See page 96 for further details.

The results for the 52 week period to 25 December 2020 reflect the impact of adopting IFRS 16, Leases. Comparatives in respect of the 2019 reporting periods have not been restated in this respect as permitted under the specific transition provisions of the standard. See note 35 for details.

The above amounts relate to transactions with owners of the Company except for the items reported within total comprehensive income.

Capital redemption reserve The capital redemption reserve represents £80,002,465 B Shares that were issued on 2 August 2006 and redeemed for cash on the same day, £19,274,610 B Shares that were issued on 10 October 2010 and redeemed for cash on 11 October 2010, £22,263,112 B Shares that were issued on 12 August 2013 and redeemed for cash on 20 August 2013 and £20,154,070 B Shares that were issued and redeemed for cash in November 2014.

Other reserves Other reserves includes movements relating to the Group’s SAYE and LTIP schemes and associated deferred tax, together with a £12.3 million merger reserve. Dignity plc Annual Report & Accounts 2020 95

Consolidated statement of cash flows for the 52 week period ended 25 December 2020

52 week period 52 week period ended ended 25 December 27 December 2020 2019 Note £m £m

Cash flows from operating activities Cash generated from operations 27 62.7 64.6 Finance income received 0.1 0.3

Finance costs paid ( 2 4 . 5 )‌‌ (25.0)‌‌ Transfer from restricted bank accounts for finance costs 12.1 12.3 Payments to restricted bank accounts for finance costs 17 ( 1 2 . 0 )‌‌ (12.1)‌‌ Total payments in respect of finance costs ( 2 4 . 4 )‌‌ (24.8)‌‌ Tax paid (6.9)‌‌ (7.9)‌‌

Net cash generated from operating activities 31.5 32.2

Cash flows from investing activities Proceeds from sale of property, plant and equipment 1.1 2.1

Maintenance capital expenditure(1) ( 9 . 1 )‌‌ (9.8)‌‌ Branch relocations ( 0 . 5 )‌‌ (1.1)‌‌ Transformation capital expenditure ( 0 . 2 )‌‌ (1.7)‌‌ Satellite locations – (0.3)‌‌ Development of new crematoria and cemeteries ( 1 . 3 )‌‌ (5.4)‌‌ Purchase of property, plant and equipment and intangible assets ( 1 1 . 1 )‌‌ (18.3)‌‌ Purchase of financial assets (by the Trusts) 14 (778.1)‌‌ (736.1)‌‌ Disposals of financial assets (by the Trusts) 14 796.8 726.6 Realised return on financial assets 3.8 3.6

Net cash used in investing activities 12.5 (22.1)‌‌

Cash flows from financing activities

Payments due under Secured Notes ( 9 . 6 )‌‌ (9.3)‌‌ Transfer from restricted bank accounts for repayment of borrowings 4.8 4.6 Payments to restricted bank accounts for repayment of borrowings 17 ( 4 . 9 )‌‌ (4.8)‌‌ Total payments in respect of borrowings ( 9 . 7 )‌‌ (9.5)‌‌ Principal and interest elements of lease payments ( 1 2 . 5 )‌‌ – Dividends paid to shareholders on Ordinary Shares 7 – (7.9)‌‌

Net cash used in financing activities ( 2 2 . 2 )‌‌ (17.4)‌‌

Net increase/(decrease) in cash and cash equivalents 21.8 (7.3)‌‌

Cash and cash equivalents at the beginning of the period 56.5 63.8

Cash and cash equivalents at the end of the period 17 78.3 56.5 Restricted cash 17 16.9 16.9

Cash and cash equivalents at the end of the period as reported in the consolidated balance sheet 17 95.2 73.4

(1) Maintenance capital expenditure includes vehicle replacement programme, improvements to locations and purchases of other tangible and intangible assets. 96 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparation European law requires that the Group’s consolidated financial statements for the 52 week period ended 25 December 2020 are prepared in accordance with all applicable International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applied in the European Union. These financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

In the current period, the Group’s consolidated financial statements have been prepared for the 52 week period ended 25 December 2020. For the comparative period, the Group’s consolidated financial statements have been prepared for the 52 week period ended 27 December 2019.

The Group’s consolidated financial statements are prepared on a going concern basis and have been prepared under the historical cost convention.

Preparation of financial statements The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. This will also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results may differ from those estimates.

Terminology: Trusts refers to The National Funeral Trust and the Trust for Age UK Funeral Plans considered for accounting purposes to be controlled and therefore included in the consolidated financial statements of Dignity plc.

Trading Group refers to Dignity plc and its subsidiaries excluding the Trusts. Trading Group therefore represents what would have been described as the ‘Dignity plc Group’ or ‘Group’ in Annual Reports prior to 2019.

Group or Dignity plc Group refers to Dignity plc, including its subsidiaries and the Trusts.

Basis of consolidation The financial statements are presented in the form of Group financial statements. The Group financial statements consolidate the accounts of the Company and the entities controlled by the Company (including all of its subsidiary entities) after eliminating internal transactions. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Results of subsidiary undertakings acquired during a period are included from the effective date of control using the acquisition method of accounting. The separable net assets, both tangible and intangible, of newly acquired subsidiary undertakings are incorporated into the financial statements on the basis of the fair value to the Group as at the effective date of control.

Prior year restatement Following the finalisation of the Group’s 2019 corporation tax returns for its subsidiary undertakings and the corresponding detailed Group corporate interest restriction return it became apparent that the interaction of the consolidation of the Trusts and the application of the complex tax provisions relating to the level of interest deductibility within the Group had been understated and consequently the 2019 financial statements were misstated. Due to an increased amount of disallowed interest expense arising predominately from the inclusion of realised and unrealised fair value movements on the bond investments within the Trust consolidation a prior year adjustment has been booked due to the magnitude of the disallowance. The Group has therefore restated its consolidated financial statements for 2019. There is no impact on any further previous accounting periods. The restatement increases the tax charge by £4.3 million with a corresponding increase in the Group’s current tax liabilities by £4.3 million. Accordingly, retained earnings as at 27 December 2019 have reduced by £4.3 million and statutory EPS has also been restated to 61.2p. A deferred tax asset cannot be recognised in this respect as it is not considered probable that the Group will be able to access the disallowed interest amounts under the corporate interest restriction rules in the foreseeable future.

Going concern The key factors which impact the Group’s financial performance are death rate, market share, mix and average revenue per funeral. As this Annual Report describes, during the COVID-19 pandemic, whilst the death rate in the UK has sadly increased and the Group’s market share remained broadly stable, both the average revenue received per funeral and the revenue received for memorial sales has declined. Whilst not back to pre-pandemic levels, following the adaptation of limousines and application of other protective measures for our colleagues and customers, the take up of full service funerals compared to simple funerals has increased to approximately 68:32 in the fourth quarter compared to 54:46 in the second quarter. This has resulted in the recovery of average revenues through 2020 to close the year (and start 2021) at approximately 94 per cent of those achieved prior to the start of COVID-19. The Group has also taken prudent action to manage costs, where appropriate, to protect its position in terms of ensuring sufficient headroom on both profitability and liquidity measures. Dignity plc Annual Report & Accounts 2020 97

1 Accounting policies (continued)

Going concern (continued) The impact on 2021 revenue and profitability will depend in part on various factors outside of the Group’s control, such as the number of deaths in the UK and the length of time social distancing measures continue to be in place.

The financial performance of the Group and the Securitisation Group has been forecast and those forecasts have been subjected to a number of sensitivities. These forecasts reflect an assessment of current and future market conditions and their impact on the future profitability of the Group and the Securitised Group. The forecasts reflect recovery at the beginning of 2022.

When considering the going concern assumption, the Directors of the Group have reviewed the principal risks within the environment in which it operates and have prepared relevant sensitised scenarios, these include:

• Prolonged period of social distancing restrictions which may serve to keep the mix and average revenue per funeral lower for a sustained period; and • A significant reduction in the number of deaths.

In all base scenarios modelled, the Group is forecast to have sufficient liquidity and meet its debt service cover ratio (‘DSCR’) in the period assessed through to 31 March 2022.

To provide further consideration of going concern, the Directors also considered what would happen in an ongoing scenario of reduced profitability significantly below management’s forecasts, such as a significant reduction in the market share or average revenues (the year to date analysis through February 2021 does not indicate the likelihood of such a scenario). In such a scenario, the Securitised Group may not meet its DSCR covenant requirements before the consideration of additional mitigating activities such as reducing controllable spend. Under the terms of the Securitised Group’s borrowings, the Securitised Group is required to maintain a DSCR of at least 1.5 times (see note 26), measured on a rolling 12 month basis every quarter. However, a breach of the covenant does not give rise to an immediate requirement to repay the associated borrowings. Rather, such a breach results in a requirement for the bond trustees to appoint a financial adviser who will review the financial and operational circumstances of the Securitised Group prior to making recommendations as to how the breach can be resolved. Notwithstanding this, given the current cash on hand and facilities available to it, the Securitised Group (as supported by the Company) would have sufficient liquid resources to make all required debt service payments for a period through to 31 March 2022.

Having considered all the above the Directors remain confident in the long-term future prospects for the Group and its ability to continue as a going concern for the foreseeable future and for a period through to 31 March 2022 and therefore continue to adopt the going concern basis in preparing the Annual Report.

Alternative performance measures (‘APMs’) The Board believes that whilst statutory reporting measures provide financial performance of the Group under GAAP, APMs are necessary to enable users of the financial statements to fully understand the trading performance and financial position of the Group. The APM’s provided are aligned with those used in the day-to-day management of the Group and allow for greater comparability across periods. For this reason, the APM’s provided exclude the impact of consolidating the Trusts and the changes which relate to the application of IFRS 15 and adoption of IFRS 16, all of which are considered to mask the underlying trading performance of the Group, as well as non-underlying items comprising certain non-recurring and non-trading transactions. See Financial Review on pages 23 and 24 and alternative performance measures on pages 156 and 157 for further information.

Investments in associated undertakings An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it is not control or joint control over those policies.

The Group’s investment in an associate is accounted for using the equity method. The investment is initially recorded at cost and the carrying amount is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment. The consolidated income statement reflects the Group’s share of the results of the associate.

The financial statements of the associate are prepared for the same reporting period as the Group. The Group aligns accounting policies and makes adjustments where necessary prior to recognising their share in the financial statements.

At each reporting date the Group performs a review to assess whether there is any objective evidence that the investment in the associate is impaired. Where such evidence exists the recoverable amount of the investment is determined by calculating its value-in-use. This recoverable amount is compared to the carrying amount of the investment and to the extent that the recoverable amount exceeds the carrying value of the investment, an impairment is recognised accordingly. Any impairment is recognised within ‘Share of loss and impairment in respect of associated undertakings’ in the consolidated income statement. 98 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies (continued)

Revenue At-need funerals and cremations Revenue from funeral operations related to at-need funerals comprises the amount recoverable from clients for the provision of funerals, income from crematoria and other services, once those services have been performed or the goods supplied.

Income from memorial sales is recognised at the point of sale, to the extent that the goods have been supplied. Costs of maintaining memorials are recognised as incurred.

The Group pays certain disbursements (such as crematoria fees, burial plots, ministers’ fees and doctors’ fees) on behalf of its clients. These amounts are recovered as part of the invoicing process. However, these amounts are not included within net revenues as they are simply passed on to the clients (plan holder) at cost and not controlled by Dignity.

All amounts are exclusive of VAT.

Pre-arranged funeral plans Trust for Age UK Plans and National Funeral Trust The Group markets and sells pre-arranged funeral plans, with monies received from selling funeral plans being held, invested and controlled by the Trusts. The responsibility for the ultimate performance of funerals is allocated to funeral directors, who are selected by the beneficiary of the plan, some of whom are not owned by the Group. The sale of a pre-arranged plan is considered to have a single performance obligation, fulfilled by the delivery of the funeral service.

Amounts received from plan holders are deferred on the balance sheet within contract liabilities until the related funeral is performed or the plan cancelled. Where, based on historic experience, the Group expects that a proportion of plans will be cancelled, the deferral takes the form of a refund liability which, under the terms of the plan, is held based on the fixed amount received on inception of the plan if a single payer or on each individual instalment received. For the majority of plans where the service as per the funeral plan is expected to be performed, the deferred amount is subject to adjustment to reflect a significant financing component.

This significant financing component, which has been calculated based on the expected discount rate that would be reflected in a separate financing transaction between the Group and the plan holder at contract inception, is charged to the income statement as a finance cost each period until the performance obligation is satisfied. The discount rate applied is fixed for the duration of each plan at inception and is based on the estimated incremental borrowing rate of the Group at the time of each cash flow.

The amount deferred on the balance sheet includes amounts paid by the plan holder, which, in addition to the plan consideration includes amounts in respect of disbursements (such as crematoria fees, burial plots, ministers’ fees and doctors’ fees). When the service prescribed by the plan is delivered, revenue is recognised equal to the deferred revenue balance related to the specific plan. When a plan is cancelled, revenue is recognised equal to the deferred revenue balance related to the specific plan, less the fixed refund due to the plan holder.

As the only directly attributable costs in respect of the marketing of the pre-arranged funeral plans are commission payments, these are held as deferred commissions in the consolidated balance sheet and recognised in the Group’s consolidated income statement, within administration expenses, on the performance of a funeral (single performance obligation) or cancellation of the plan (if outside of a clawback period).

Contract liabilities and deferred commissions balances are split between current and non-current based on historical experience.

All costs in respect of the administration of the pre-arranged funeral plans are expensed in the Group’s consolidated income statement as incurred, within the funeral services segment.

Dignity, through its marketing subsidiary companies, contractually guarantees with the holder of a pre-arranged funeral plan that (i) if the plan holder chooses to cancel their selected funeral plan, a full refund will be made to them of all monies paid in respect thereof (less in certain cases an administration fee payable to the relevant Dignity marketing company); (ii) the funeral director’s services (as selected by the plan holder) will be provided regardless of price rises in the future; and (iii) for the majority of plans sold, specific disbursements (such as crematoria fees, ministers’ fees and doctors’ fees) will be provided regardless of price rises in the future.

Other trust plans Revenue in respect of funeral services subject to pre-need plan arrangements associated with the other trusts is recognised on delivery of the underlying service at the amount paid from the other trusts to the Group. Dignity plc Annual Report & Accounts 2020 99

1 Accounting policies (continued)

Insurance plans The Group is the named beneficiary on a number of life assurance products sold by third party insurance companies, in consideration for which the Group has committed to performing the funeral (including some disbursements) of the plan holder at a discount to its rates prevailing at the time of death.

Where a commission is paid to the insurers, these costs are carried as a prepayment and charged to the consolidated income statement as a funeral is performed.

Where a commission is payable only on delivery of the funeral no amounts are recorded until the funeral is performed.

In the event of the death of the policyholder, if the Group performs the funeral, it receives an agreed amount from the insurers which is recognised as revenue within the funeral services division. On occasions a third party will perform the funeral and the Group will pass on all monies received to that party and in this situation the Group is deemed to be acting as an agent and revenue is treated as pass through revenue and not grossed up within the consolidated income statement.

Share-based payments The Group issues equity settled share-based payments to certain employees. A fair value for the equity settled share awards is measured at the date of grant. Management measures the fair value using the valuation technique that they consider to be the most appropriate to value each class of award, which include Black-Scholes calculations and Monte Carlo simulations. The valuations take into account factors such as non-transferability, exercise restrictions and behavioural considerations.

An expense is recognised to spread the fair value of each award over the vesting period on a straight line basis, after allowing for an estimate of the share awards that will eventually not vest. The estimate of the level of vesting is reviewed at least annually, with any impact on the cumulative charge being recognised immediately. When the options are exercised the Company issues new shares.

Earnings per Ordinary Share Basic Earnings per Ordinary Share (‘EPS’) is calculated by dividing the profit after taxation by the weighted average number of shares in issue during the period. Diluted EPS is calculated by dividing profit after taxation by the weighted average number of shares in issue during the period increased by the effects of all dilutive potential Ordinary Shares (primarily share options). Underlying Earnings per Ordinary Share is calculated by dividing the underlying profit after tax by the weighted average number of shares in issue during the period.

Fair value measurement The Group measures financial assets held by the Trusts at fair value and discloses fair values for all other financial assets and liabilities at each balance sheet date which are held at amortised cost.

Fair value related disclosures are set out in note 23 in respect of financial instruments.

Fair value is the price that would be received to sell an asset or paid to transfer a liability measured using the assumptions that market participants would use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and where required the use of unobservable inputs.

Intangible assets – goodwill Goodwill, which represents the excess of the fair value of the consideration paid for subsidiaries and other businesses over the fair values of the net assets acquired and liabilities assumed, is capitalised and stated at historical cost less provisions for impairment.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The businesses and subsidiaries acquired are generally combined with existing operations in the year of acquisition, or the year thereafter and are therefore only considered to be separate cash-generating units during this time.

Intangible assets – trade names Intangible trade names are recognised as assets at the estimated fair value of the consideration paid to acquire them and are carried at historical cost less amortisation and provisions for impairment. When acquired as part of a business combination the fair value is calculated by reference to the estimated incremental cash flows expected to arise by virtue of the trade name being well-established.

Amortisation is provided from the date of acquisition so as to write-off the asset on a straight line basis over the term of its useful life. The useful life for trade names is 35 years. 100 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies (continued)

Intangible assets – software Where computer software is not an integral part of a related item of computer hardware, the software is treated as an intangible asset. Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring into use the specific software.

An internally generated intangible asset arising from the Group’s development of computer systems (including websites) is recognised if, and only if, the costs are directly associated with the production of identifiable and unique software products, controlled by the Group and it is probable that future economic benefits will flow to the Group.

Costs recognised as assets are amortised over their estimated useful lives (three to eight years) using the straight line method.

Intangible assets – use of third party brand name The Group has a marketing agreement with Age UK Enterprises Limited, giving rights to market pre-arranged funeral plans under the Age UK brand. The value of this right has been recognised as a separate intangible asset.

This asset is being amortised over 20 years on a straight line basis, recognising that each year’s additional marketing activity generates incremental revenues and profits to the Group for at least the following 20 years.

Intangible assets – other The Group previously acquired interests in two crematoria subject to finite periods of operation (by way of lease and/or service concession). The fair value of these interests has been identified and recognised as a separate intangible asset. The value of each interest is being amortised over the remaining period of operation.

Property, plant and equipment Assets are recorded in the balance sheet at cost less accumulated depreciation and any recognised impairment loss. Cost includes, where appropriate, directly attributable costs incurred in bringing each asset to its present location and condition.

Depreciation is charged so as to write-off the cost of assets to their residual value (excluding freehold land and assets in the course of construction), over their expected useful lives using the straight line method. The bases and annual depreciation rates in use for the various classes of assets are as follows:

Freehold and long leasehold buildings 2% – 10% Short leasehold buildings Over term of lease Motor vehicles 7% – 20% Computers 20% Other plant and equipment 5% – 33% Fixtures and fittings 15%

Freehold land is not depreciated on the basis that land has an indefinite life. Where the historical cost of land and buildings cannot be split, the Directors have estimated that the historical cost attributable to land is one third (based on historical data) of the original cost of acquiring the land and buildings. This estimate is regularly reviewed.

Major renovations of the Group’s trading premises and cremator re-linings are depreciated over the remaining life of the related asset or to the estimated date of the next major renovation or cremator re-lining, whichever is sooner. Asset lives and residual values for each class of asset are reviewed annually and adjusted if appropriate at each balance sheet date.

Assets in the course of construction are shown as work in progress at a value equal to costs incurred to date. Once completed, they are reclassified and depreciated using the Group’s depreciation policy above.

Borrowing costs If the construction phase of property, plant or equipment extends over a long period, the interest incurred on borrowed capital up to the date of completion is capitalised as part of cost of construction as permitted by IAS 23 (Borrowing Costs).

Repairs and renewals All repairs and renewals are charged to the income statement unless they represent an enhancement to the original asset.

Profit (or loss) on sale of fixed assets Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within profit (or loss) on sale of fixed assets in the income statement. Dignity plc Annual Report & Accounts 2020 101

1 Accounting policies (continued)

Property, plant and equipment held under leases (accounting policy applied pre 28 December 2019) When assets are financed by leasing agreements, where the risks and rewards are substantially transferred to the Group, the assets are treated as if they had been purchased outright and the corresponding liability to the lessor is included as an obligation under finance leases. Depreciation on leased assets is charged to the income statement on the same basis as owned assets. Leasing payments are treated as consisting of capital and interest elements such that the interest element is charged to the income statement so as to achieve a constant rate on the outstanding lease obligation.

All other leases are ‘operating leases’ and the relevant annual rentals, net of any incentives received from the lessor, are charged to the income statement on a straight line basis over the period of the lease.

Right-of-use assets and lease liabilities (accounting policy applied from 28 December 2019) At inception of a contract the Group assesses whether the contract is or contains a lease. A lease is present where the contract conveys, over a period of time, the right to control the use of an identified asset in exchange for consideration.

Where a lease is identified the Group recognises a right-of-use asset and a corresponding lease liability, except for short-term leases (defined as leases with a lease term of 12 months or less), leases of low-value assets (defined as leases with rentals below £1,000 per annum) and leases with contingent rentals.

Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease and comprise the initial measurement of the corresponding lease liability and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

The right-of-use asset is presented as a separate line in the consolidated balance sheet.

Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment under IAS 36.

Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

The lease liability is presented as a separate line in the consolidated balance sheet, split between current and non-current liabilities.

Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases (defined as leases with a lease term of 12 months or less). It also applies the lease of low-value assets recognition exemption to leases that are considered of low-value (defined as leases with rentals below £1,000 per annum). Lease payments on short-term leases and leases of low-value assets are recognised as operating expense on a straight-line basis over the lease term.

Impairment of assets The carrying values of intangible assets and property, plant and equipment are reviewed for impairment in periods where events or changes in circumstances indicate that the carrying value may not be recoverable. Assets that have an indefinite useful life (e.g. goodwill) which are not subject to amortisation are tested annually for impairment.

Where an asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. For goodwill this is considered at a business segment level as that is the level at which the return on assets acquired is monitored. Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future discounted cash flows of the cash-generating unit are estimated, based on latest management expectations for the following year and an annual growth rate in subsequent years. These cash flows are discounted at rates that management estimate to be the risk affected average cost of capital for the particular segment and compared to the carrying value of the relevant asset. Any impairment in the value of an asset below its carrying value is charged to the income statement within operating profit. A reversal of an impairment loss is recognised in the income statement to the extent that the original loss was recognised, net of the amortisation or depreciation that would have been charged. Any impairment loss recognised for goodwill will not be reversed. 102 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies (continued)

Inventories Inventories, which comprise funeral supplies and monumental masonry, are stated at the lower of cost and net realisable value. Cost includes all directly attributable costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred in completion and sale. The cost of PPE inventory is calculated using average costing.

Taxation The tax charge for the period includes the charge for tax currently payable and deferred tax. The current tax charge represents the estimated amount due that arises from the operations of the Group in the period and after making adjustments to estimates in respect of prior years.

Deferred tax is recognised in respect of all differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, except where the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets and liabilities are offset to generate a net asset or liability if the conditions of IAS 12 are met.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the deductible temporary difference can be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the periods in which the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted, by the balance sheet date.

Pensions The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligation.

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to retained earnings in other comprehensive income in the period in which they arise.

Changes in the present value of the defined benefit obligation resulting from plan amendments, curtailments or one off adjustments such as GMP equalisation are recognised immediately in the consolidated income statement as a past service cost.

Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, where it is probable that a transfer of economic benefits will be required to settle the obligation and where a reliable estimate can be made of the amount of the obligation.

Provisions (other than deferred tax) are discounted where the present value of the provision is materially different to the undiscounted value. The unwinding of discounts is included within finance costs.

Employee share trust The assets of the employee share trust are held by a separate limited company, of which the Directors consider that Dignity plc has de facto control. At the balance sheet date, the trust’s assets and liabilities recognised in the Group’s balance sheet within share capital and reserves were nil (2019: nil).

Dividends Dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the financial statements when paid. Dignity plc Annual Report & Accounts 2020 103

1 Accounting policies (continued)

Financial instruments: Financial liabilities Borrowings All borrowings are stated at the fair value of consideration received after deduction of transaction costs and subsequently at amortised cost. The transaction costs, interest payable and premium on debt finance are charged/credited to the consolidated income statement, as finance costs/income, on a constant-yield basis over the term of the borrowings, or over a shorter period where it is more likely than not that the lender will require earlier repayment, using the effective interest method.

Trade payables Trade payables are not interest bearing and are initially recognised at fair value and subsequently measured at amortised cost.

Financial assets Financial assets are classified at initial recognition and subsequently measured at amortised cost at fair value through other comprehensive income or fair value through profit and loss.

Initial recognition & measurement The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.

All investments held by the Trusts are held at fair value with movements reflected through profit and loss to ensure clarity for a user of the financial statements. This is because the Trusts objective of holding these investments is not to collect contractual cash flows or to sell financial assets but to focus on the fair value information to assess performance and make investment decisions.

All other financial assets (including trade receivables) are held at amortised cost as these assets give rise to cash flows that are solely payments of principal and, where applicable, interest on the principal amount and it is the Group’s business model to collect the contractual cash flows.

The majority of the Group’s trade receivables do not contain a significant financing component and are measured at the transaction price determined under IFRS 15.

Subsequent measurement Financial assets held at fair value through profit and loss are carried in the consolidated balance sheet at fair value with net changes in fair value recognised in the income statement.

Financial assets held at amortised cost are subsequently measured using the effective interest (‘EIR’) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Derecognition A financial asset is derecognised when the rights to receive cash flows from the asset have expired or the Group has transferred its rights to receive cash flows from the asset and has either transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risk and rewards of the asset but has transferred control of the asset.

Impairment The Group recognises an allowance for expected credit losses (‘ECLs’) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive.

For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for identifiable forward-looking factors specific to the debtors and the economic environment.

Cash and cash equivalents Cash and cash equivalents comprise cash in hand and on demand deposits and amounts included in accounts restricted for specific uses. Cash and cash equivalents comprise cash in hand and on demand deposits and amounts included in accounts restricted for specific uses. Cash and cash equivalents have an original maturity of three months or less, are subject to insignificant changes in value and are readily convertible into known amounts.

Trade receivables Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost. A provision for impairment is established based on historical experience. When a trade receivable is not collectable it is written-off against the allowance account. Subsequent recovery of amounts previously written-off are credited against administrative expenses in the income statement. 104 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies (continued)

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct transaction costs.

Critical accounting judgements The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements in certain circumstances that affect reported amounts. The key judgements affecting the financial statements are detailed below: Consolidation of pre-need trusts The Group markets and sells pre-arranged funeral plans, with monies received from selling funeral plans being held and invested by pre-arranged funeral plan trusts. These financial statements reflect the consolidation of the two principal pre‑arranged funeral plan trusts being the Trust for Age UK Plans and the National Funeral Trust (together the ‘Trusts’).

IFRS 10 is built on existing principles by identifying the concept of control as the determining factor on whether an entity should be included in the consolidated financial statements of the parent company. In order to have control, IFRS 10 requires a parent company to have power over the investee, an exposure to variable returns because of its involvement in the investee and the ability to use its power over the investee to affect the amount of the variable returns.

The decision as to whether to consolidate these trusts is a matter of significant judgement in respect of which the Group believes that informed individuals could reach alternative conclusions. The Group concluded as part of its 2019 period end that more weight should be attributed to its ability to appoint and remove trustees and less to the legislative requirement for a majority of trustees to be unconnected with Dignity. As a result, the Group reached a judgement, the basis of which is summarised below, that it does have control as defined by IFRS 10 and therefore those pre-arranged funeral plan trusts where it has the ability to appoint and remove trustees are now consolidated.

Whether to consolidate the Trusts or not remains a key judgement and the basis of this judgement reflected in these financial statements is summarised in the table below. The table relates solely to the two principal trusts which are consolidated and for the purpose of the table, ‘Dignity’ refers to the Group excluding the Trusts.

IFRS 10 consideration Analysis Power over the investee. Power arises when Whilst Dignity has no voting rights over the Trusts or any rights to direct the investor has existing rights that give them the activities of the Trusts, it does have the power to appoint and remove the ability to direct the relevant activities of the a majority of trustees. Whilst legislation requires the majority of trustees to investee, being those activities which influence the be unconnected with Dignity this right does not prevent Dignity removing returns achieved by the investee. a majority of the Trustees from office such that on balance it is considered that Dignity is able to control the actions of the Trustees who in turn control the investment decisions of the Trusts and negotiate with Dignity the marketing allowance paid to Dignity on behalf of the Trust. Also, Dignity controls the charge levied to the Trusts for the provision of funeral services (‘funeral cover’).

The investor is exposed, or has rights, to variable Dignity receives an allowance for the marketing of the plans and for the returns from its involvement with the investee. performance of a funeral. From time to time Dignity may receive a surplus from the Trusts.

The extent of the marketing allowance establishes the amount to be held in Trust on which investment returns can be made.

Ultimately Dignity’s return is wholly dependent on the amounts held for investment in the Trusts and the investment performance of the Trusts.

The investor has the ability to use its power over Dignity establishes the level of funeral cover and negotiates the level of the investee to affect the amount of the investor’s marketing allowance with the Trustees on an annual basis. returns. The investment strategy is set, implemented and monitored by the Trustees. Consequently, as Dignity is on balance considered to control the actions of the Trustees, Dignity has the power to affect the amount of its returns.

For other, smaller trusts from which Dignity receives funeral cover in the event that they deliver a funeral service, the judgement is that the Group has no power over the actions of the investee as Dignity does not have the ability to appoint or remove trustees. Further, as these trusts do not accept new plans and the level of funeral cover paid by these trusts is derived based on the value of trust assets and the number of remaining open funeral plans alone, Dignity has no wider ability to affect its variable returns from these trusts. Consequently, Dignity is unable to use its power to influence its variable returns, such that the Group is not considered to control these trusts and therefore these trusts are not consolidated. Dignity plc Annual Report & Accounts 2020 105

1 Accounting policies (continued)

Deferred revenue and associated significant financing The significant financing component is based on estimates made in respect of the enlarged Group’s (to include the Trusts) incremental borrowing rate at the time of inception of each funeral plan. Once established the rate applied to a plan is fixed for the duration of the plan. Given the rates are fixed at inception, there is no further estimation uncertainty on these cash flows, and therefore no further sensitivity disclosures are applied as for more recent cash flows in respect of 2019 and 2020, the estimate of the Group’s (including the Trusts) incremental borrowing rate contains less estimation uncertainty.

Critical accounting estimates The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements in certain circumstances that affect reported amounts. The most sensitive estimates affecting the financial statements are detailed below:

Pensions The Group operates a defined benefit pension scheme that is accounted for using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. These actuarial assumptions include discount rates, assumed rates of return, salary increases and mortality rates.

While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the consolidated balance sheet and consolidated statement of comprehensive income. The Group considers that the most significant assumptions are the discount rate and the inflation rate. See note 29 for further details.

Funeral services goodwill impairment assessment Performing the annual impairment assessment for goodwill requires an estimation of the value-in-use of the cash-generating units to which the goodwill has been allocated. The value-in-use calculation requires the use of estimates including those in respect of future cash flows, growth rates and an appropriate discount rate. See note 9 for further details.

Trade name intangible assets impairment assessment An impairment assessment has been required on trade name intangible assets given the changes in the funeral market and the increase in the discount rate to be applied in determining their value-in-use. The value-in-use calculation also requires the use of other estimates including those in respect of future cash flows and growth rates. See note 9 for further details.

Fair value of financial assets As set out in note 23 some of the Group’s financial assets held by the Trusts are valued using inputs that are not based on observable data and therefore contain some estimates. This fair value information is provided by the investment manager engaged by the Trusts. The Group has no input to, or influence over, the valuation methodologies applied by the investment manager. See also note 23 on market risk.

Contract liabilities Deferred revenue is split between current and non-current to reflect the expected number of plans to be utilised within the next 12 months. This is based on historical experience. Actual experience may differ due to factors such as death rate.

The refund liability is split between current and non-current based on historical experience to reflect the expected number of plans to be cancelled within the next 12 months. Actual cancellation rates may differ.

IFRS 16 Incremental Borrowing Rate (‘IBRs’) On transition to IFRS 16 the Group’s IBR has been applied to the lease liabilities that were in scope as at 28 December 2019. The weighted average IBR applied was 4.9 per cent, with a minimum rate of 3.6 per cent and a maximum rate of 6.8 per cent. These rates have been based on corporate bond yields to maturity reflecting the Group’s indicative credit rating. In order to assess the Group’s IBR’s we have considered yield curves at 28 December 2019 for similarly rated listed corporate bonds for durations aligned with the adjusted unexpired lease durations.

Standards, amendments and interpretations effective in 2020 The Group has applied IFRS 16, Leases for the first time in the preparation of the Group’s consolidated financial statements. A description of the nature and effect of transition to this standard are presented in note 35.

Comparatives in respect of the 2019 reporting periods have not been restated as permitted under the specific transition provisions of the standard. 106 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

1 Accounting policies (continued)

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted The following standards, amendments and interpretations to existing standards have been published that are mandatory for accounting periods beginning on or after 1 January 2021 or later periods but which the Group has not early adopted:

IFRS 17, Insurance Contracts. The standard is expected to be effective 1 January 2023 and will therefore impact on the Group’s 2024 Annual Report. The new standard establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The Group is in the early stages of assessing whether the standard will have an impact in relation to its pre-need funeral plans.

IAS 1, Presentation of financial statements. The amendment to the standard is expected to be effective 1 January 2023 and will therefore impact on the Group’s 2024 Annual Report. The amendment to the standard is to specify the requirements for classifying liabilities as current or non-current. This is not expected to have a material impact on the Group.

All other new accounting standards and interpretations that have been published are not effective for 25 December 2020 and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods or on foreseeable future transactions.

The Group’s securitisation documents contemplate accounting policy changes and provide a mechanism that ensure covenant calculations are not materially impacted to the detriment of either the Group or Noteholders.

2 Financial risk management The Group finances its operations by a mixture of shareholders’ funds, Secured Notes and bank borrowings. This approach seeks to minimise financing costs and generate optimum shareholder value through efficient leveraging of the Group’s balance sheet, which is made possible by the stable and predictable cash-generative nature of the business.

It is not the Group’s policy to actively trade in derivatives.

Market risk Interest rate risk and other price risk The Group’s main borrowings consist of Secured Notes, which are at fixed interest rates, resulting in a predetermined repayment profile. The fair value of these financial instruments is based on underlying gilt prices and yield spreads based on the market’s current view of the risk profile of the Secured Notes. Consequently, the fair value of these instruments will fluctuate. Fair values are not relevant to the Group unless it was to change its funding strategy and repay the Secured Notes early.

The Trading Group has significant cash balances that are held by institutions with a long-term rating of at least BBB by Standard & Poor’s and BBB- by Fitch. These balances earn interest by reference to the Bank of England base rate. If interest rates reduced by one per cent at the beginning of 2021 then the Group would receive no interest income due to the rates all currently being below one per cent. If interest rates were to increase by one per cent at the beginning of 2021 then the Group would receive £0.1 million additional interest on an annualised basis for each £10.0 million held.

The Trusts also hold significant cash balances which are also subject to interest rate fluctuations, as well as holding equity and bond investments which see fluctuations due to market conditions. The Trusts have trustees, the majority of whom are required by law to be unconnected to the Trading Group. The Trusts have separate professional advisers, meet regularly and operate an investment policy by reference to a statement of investment principles. The Trustees target a return of above 1.5 per cent above RPI, subject to defined acceptable levels of absolute loss and risk of loss to the actuarial valuation.

None of the Group’s other financial liabilities or financial assets carry any significant interest rate risk.

Credit risk Trade receivables are the main source of credit risk to the Group. However, this risk is minimised as much as possible through well-established credit control procedures. Quantitative disclosures regarding the ageing of these receivables are included in note 23(c).

Liquidity risk The Group manages its liquidity risk by maintaining sufficient cash reserves, committed undrawn borrowing facilities and regular monitoring and forecasting of cash balances. In addition, the Group is required under the terms of its secured borrowings to maintain a precisely defined EBITDA to total debt service ratio of at least 1.5 times in respect of the securitisation group, excluding the pre-need trusts. This ratio was determined when raising the debt as being sufficient to ensure all borrowings could be repaid. This covenant test has been satisfied on each quarterly testing date in the period. At 25 December 2020 the actual ratio was 1.99 times (2019: 2.13 times). Dignity plc Annual Report & Accounts 2020 107

2 Financial risk management (continued)

Capital risk management The Group’s objective under managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and repay holders of Secured Notes. It also aims to reduce its cost of capital by maintaining an optimal capital structure. The Group’s capital comprises equity and net debt as set out in note 26. The Group’s principal source of long-term debt financing are the Secured A Notes, rated A- by both Fitch and Standard & Poor’s and the Secured B Notes rated BB+ and B+ respectively by Fitch and Standard & Poor’s. The Group monitors its capital structure based on the ratio of the Trading Group gross debt, as summarised in note 26, to underlying earnings before interest, taxation, depreciation and amortisation. In order to achieve these objectives, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or issue further Class A and B Secured Notes. During the period, the Group achieved its covenants for the Secured Notes under the terms of the Group’s secured borrowings (see ‘Liquidity risk’ above).

3 Revenue and segmental analysis Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments. The chief operating decision maker of the Group has been identified as the three Executive Directors (which includes the Executive Chairman). For statutory purposes the Group has two reporting segments, funeral services and crematoria, as under IFRS 15 only a single performance obligation exists when a pre-arranged funeral plan is sold, being the performance of a funeral. The Group also reports central overheads, which comprise unallocated central expenses.

Revenue Funeral services relate to two primary sources of revenue:

• Funerals arranged and funded by the client at the time of need, in addition to ancillary items, such as memorials and floral tributes; and • Funerals arranged and funded by a pre-arranged Trust funeral plan, for which amounts recognised as revenue arise from the de-recognition of deferred revenue on completion of the related performance obligation. Crematoria services relate to cremation services and the sale of memorials and burial plots at the Dignity operated crematoria and cemeteries.

Underlying revenue For the purpose of alternative performance measures the Group has three reporting segments, funeral services, crematoria and pre-arranged funeral plans as the chief operating decision maker reviews segmental performance before applying the effect of IFRS 15.

Funeral services relate to the provision of funerals and ancillary items, such as memorials and floral tributes.

Crematoria services relate to cremation services and the sale of memorials and burial plots at the Group’s crematoria and cemeteries.

Pre-arranged funeral plans represent the sale of funerals in advance to clients wishing to make their own funeral arrangements and the marketing and administration costs associated with making such sales.

Substantially all Trading Group revenue is derived from, and substantially all of the Trading Group’s net assets and liabilities are located in, the United Kingdom and Channel Islands and relates to services provided. Overseas transactions are not material.

Underlying revenue and underlying operating profit are stated before non-underlying items and the effect of consolidation of the Trusts, applying IFRS 15 and adopting IFRS 16 as defined on pages 156 and 157.

Reconciliations to statutory amounts Non-underlying items represent certain non-recurring or non-trading transactions. See alternative performance measures on pages 156 and 157 for further details.

Other adjustments reflect the impact of consolidating the Trusts and subsequent impact on corporate interest restriction disallowances, applying IFRS 15 and the adoption of IFRS 16 in the current period. It also includes the impact of the deferred tax rate change on the Trust and IFRS 15 balances. Underlying revenue substitutes revenue arising from the de-recognition of deferred revenue on completion of the related performance obligation, which includes the impact of significant financing as outlined in note 1, with the payments received from the Trusts on the death of a plan member, and recognises marketing allowances at the inception of a plan, net of an allowance for cancellations. Underlying revenue also excludes amounts relating to disbursements and external payments made when the performance of the plan funeral is delivered by third parties. See alternative performance measures on pages 159 and 160 for a full reconciliation. 108 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

3 Revenue and segmental analysis (continued)

Disaggregated revenue The disaggregated revenue and operating profit/(loss), by segment, is shown in the following tables:

Underlying Other revenue adjustments (1) Revenue 52 week period ended 25 December 2020 £m £m £m

Funeral services 202.6 72.2 274.8 Crematoria 82.7 – 82.7 Pre-arranged funeral plans 28.8 ( 2 8 . 8 )‌‌ –

Group 314.1 43.4 357.5

(1) See alternative performance measures on page 159 for a reconciliation of other adjustments.

Within funeral services revenue £113.2 million relates to deferred revenue arising on the completion of performance obligations under pre-need Trust plans.

In addition to the adjustments noted above relating to revenue, in arriving at underlying operating profit further ‘other adjustments’, reflecting the impact of consolidating the Trusts and applying IFRS 15, have been recorded. This includes corresponding entries relating to the exclusion of disbursements and external payments made when the performance of the funeral is delivered by third parties, adjustments are also made to exclude the Trusts administration costs and to recognise commissions payable at the inception of a plan rather than on delivery of the funeral or cancellation. Furthermore, for the period ended 25 December 2020 ‘other adjustments’ to operating profit also includes the impact of adopting IFRS 16, with operating lease rentals being replaced with depreciation, finance costs and a release of accruals and prepayments.

Underlying operating profit/ Underlying Underlying (loss) before depreciation operating depreciation and and profit/ Non-underlying Other Operating amortisation amortisation (loss) items(1) adjustments(1) profit/(loss) 52 week period ended 25 December 2020 £m £m £m £m £m £m

Funeral services 62.1 ( 1 2 . 1 )‌‌ 50.0 (48.3)‌‌ 15.8 17.5 Crematoria 48.7 ( 5 . 9 )‌‌ 42.8 ( 0 . 2 )‌‌ 2.6 45.2 Pre-arranged funeral plans – – – ( 0 . 1 )‌‌ 0.1 – Central overheads ( 3 5 . 3 )‌‌ ( 1 . 8 )‌‌ ( 3 7 . 1 )‌‌ ( 9 . 8 )‌‌ 0.1 ( 4 6 . 8 )‌‌

Group 75.5 ( 1 9 . 8 )‌‌ 55.7 ( 5 8 . 4 )‌‌ 18.6 15.9 Finance costs ( 2 5 . 1 )‌‌ ( 4 . 7 )‌‌ ( 2 9 . 8 )‌‌ Finance income 0.1 – 0.1 Deferred revenue significant financing (53.1)‌‌ (53.1)‌‌ Remeasurement of financial assets held by the Trusts and related income 47.3 47.3

(Loss)/profit before tax 30.7 ( 5 8 . 4 )‌‌ 8.1 ( 1 9 . 6 )‌‌ Taxation – continuing activities ( 7 . 4 )‌‌ 6.1 ( 5 . 7 )‌‌ ( 7 . 0 )‌‌ Taxation – rate change – ( 3 . 6 )‌‌ 4.7 1.1

Taxation – total ( 7 . 4 )‌‌ 2.5 ( 1 . 0 )‌‌ ( 5 . 9 )‌‌

Underlying earnings for the period 23.3 Non-underlying items ( 5 5 . 9 )‌‌ Other adjustments 7.1

Loss after taxation ( 2 5 . 5 )‌‌

(Loss)/earnings per share for profit attributable to equity shareholders – Basic (pence) 46.6p (51.0)p – Diluted (pence) (51.0)p

(1) See alternative performance measures on page 159 for a reconciliation of non-underlying items and other adjustments. Dignity plc Annual Report & Accounts 2020 109

3 Revenue and segmental analysis (continued)

Underlying Other revenue adjustments (1) Revenue 52 week period ended 27 December 2019 £m £m £m

Funeral services 203.3 58.8 262.1 Crematoria 76.8 – 76.8 Pre-arranged funeral plans 21.2 (21.2)‌‌ –

Group 301.3 37.6 338.9

(1) See alternative performance measures on page 160 for a reconciliation of other adjustments.

Within funeral services revenue £91.7 million relates to deferred revenue arising on the completion of performance obligations under pre-need Trust plans.

Underlying operating profit/ (loss) before Underlying Underlying Other Operating depreciation and depreciation and operating profit/ Non-underlying adjustments(1) profit/(loss) amortisation amortisation (loss) items(1) restated restated 52 week period ended 27 December 2019 £m £m £m £m £m £m

Funeral services 68.6 (12.3)‌‌ 56.3 (10.0)‌‌ 8.4 54.7 Crematoria 43.6 (5.2)‌‌ 38.4 (1.2)‌‌ – 37.2 Pre-arranged funeral plans – – – (0.2)‌‌ 0.2 – Central overheads (29.6)‌‌ (1.8)‌‌ (31.4)‌‌ (15.7)‌‌ – (47.1)‌‌

Group 82.6 (19.3)‌‌ 63.3 (27.1)‌‌ 8.6 44.8 Finance costs (25.8)‌‌ (25.8)‌‌ Finance income 0.2 0.2 Deferred revenue significant financing (54.1)‌‌ (54.1)‌‌ Remeasurement of financial assets held by the Trusts and related income 85.0 85.0 Share of loss in associated undertakings (0.6)‌‌ (0.6)‌‌ Impairment of investments in associated undertakings (5.4)‌‌ (5.4)‌‌

Profit before tax 37.7 (33.1)‌‌ 39.5 44.1 Taxation (7.4)‌‌ 4.9 (11.0)‌‌ (13.5)‌‌

Underlying earnings for the period 30.3 Non-underlying items (28.2)‌‌ Other adjustments 28.5

Profit after taxation 30.6

Earnings per share for profit attributable to equity shareholders – Basic (pence) 60.6p 61.2p – Diluted (pence) 61.2p

(1) See alternative performance measures on page 160 for a reconciliation of non-underlying items and other adjustments. 110 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

4 Net finance costs

52 week period 52 week period ended ended 25 December 27 December 2020 2019 £m £m

Finance costs Secured Notes 23.4 23.7 Other loans 1.1 1.3 Net finance cost on retirement benefit obligations (note 29) 0.5 0.7 Unwinding of discounts 0.1 0.1

Underlying finance costs 25.1 25.8 Finance cost on IFRS 16 lease liability 4.7 –

Finance costs 29.8 25.8

Finance income Bank deposits ( 0 . 1 )‌‌ (0.2)‌‌

Finance income ( 0 . 1 )‌‌ (0.2)‌‌

Deferred revenue significant financing (note 20) 53.1 54.1

Remeasurement of financial assets held by the Trusts and related income Realised investment income ( 6 . 0 )‌‌ (5.5)‌‌ Changes in fair value of financial assets held by the Trusts (note 14) ( 4 1 . 3 )‌‌ (79.5)‌‌

Remeasurement of financial assets held by the Trusts and related income ( 4 7 . 3 )‌‌ (85.0)‌‌

Underlying net finance costs Underlying finance costs 25.1 25.8 Finance income ( 0 . 1 )‌‌ (0.2)‌‌

Underlying net finance costs 25.0 25.6

Dignity plc Annual Report & Accounts 2020 111

5 Profit before tax

52 week period 52 week period ended ended 25 December 27 December 2020 2019 Analysis by nature £m £m

The following items have been included in arriving at profit before tax: Staff costs (note 28) 116.4 107.4 Cost of inventories recognised as an expense (included in cost of sales) 17.4 17.3 Depreciation of property, plant and equipment – owned assets (note 10) 19.6 19.1 Deprecation of right-of-use asset (note 11)(1) 9.2 – Amortisation of intangible assets (included in administrative expenses) (note 9) 4.9 5.0 Expense related to practical expedients applied under IFRS 16 (note 11) 0.2 – Operating lease rentals – property – 15.0 Business rates relief ( 4 . 1 )‌‌ – Inventory provisions (note 15) 1.3 – Trade receivables impairment (included in administrative expenses) (note 23(c)) 1.9 1.1 Transformation Plan costs(1) 4.7 12.1 Directors severance pay 1.6 – External transaction costs (included in administrative expenses)(1) 0.8 0.9 Operational review and competition review costs(1) 2.9 3.5 Trade name impairment (note 9)(1) 15.3 6.8 Goodwill impairment (note 9)(1) 28.7 – Share of loss of associated undertakings(1) – 0.6 Impairment of investments in associated undertakings(1) – 5.4 Profit on sale of fixed assets(1) ( 0 . 2 )‌‌ (1.0)‌‌

Services provided by the Group’s auditors and its associates: Fees payable to the Company’s auditors for the audit of parent company 0.3 0.4 and consolidated financial statements Fees payable to the Company’s auditors and its associates for other services: – The audit of Company’s subsidiaries 0.3 0.2 – Tax advisory services – – – Other advisory services – –

0.6 0.6

(1) Items are excluded in arriving at underlying performance measures. Please see the alternative performance measures on pages 156 and 157 for further details.

During 2020, the Group paid £59,000 (2019: £65,000) of fees to the Group’s auditor, in addition to the amounts given above, in connection with non-audit services, which are specifically audit related assurance services. See the Audit Committee Report for further details. 112 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

6 Taxation

52 week period 52 week period ended ended 25 December 27 December 2020 2019 restated Analysis of charge in the period £m £m

Current tax – current period 9.4 9.1 Adjustments for prior period 0.1 0.1

Total corporation tax 9.5 9.2

Deferred tax – current period ( 2 . 9 )‌‌ 4.9 Adjustments for prior period 0.4 (0.6)‌‌ Restatement of deferred tax for the change in UK tax rate ( 1 . 1 )‌‌ –

Total deferred tax ( 3 . 6 )‌‌ 4.3

Taxation 5.9 13.5

52 week period 52 week period ended ended 25 December 27 December 2020 2019 Tax on items credited to other comprehensive income or equity £m £m

Deferred tax credit on remeasurement losses on retirement benefit obligations ( 2 . 2 )‌‌ (0.3)‌‌ Deferred tax credit relating to maturity of option schemes – (0.1)‌‌ Restatement of deferred tax for the change in UK tax rate ( 0 . 5 )‌‌ –

Total deferred tax credited to other comprehensive income or equity ( 2 . 7 )‌‌ (0.4)‌‌

The taxation charge in the period is higher (2019: higher) than the standard rate of corporation tax in the UK of 19.0 per cent (2019: 19.0 per cent). The differences are explained below: 52 week period 52 week period ended ended 25 December 27 December 2020 2019 restated £m £m

(Loss)/profit before taxation ( 1 9 . 6 )‌‌ 44.1

(Loss)/profit before taxation multiplied by the standard rate of corporation tax in the UK of 19.0% (2019: 19.0%) ( 3 . 7 )‌‌ 8.4 Effects of: Adjustments in respect of prior period 0.5 (0.5)‌‌ Corporate interest restriction disallowance 4.3 4.3 Restatement of deferred tax for the change in UK tax rate ( 1 . 1 )‌‌ – Expenses not deductible for tax purposes 5.9 1.3

Total taxation charge 5.9 13.5

Under IFRS the tax rate is higher (2019: higher) than the standard UK tax rate of 19.0 per cent (2019: 19.0 per cent) principally due to the non-deductible expenses, prior period adjustments and corporate interest restriction disallowance (2019: non‑deductible expenses, prior period adjustments and corporate interest restriction disallowance). See Financial Review for further details. The Group’s effective tax rate on underlying profits in the period was 24.1 per cent (2019: 19.5 per cent). The current period underlying effective tax rate is higher due to the effects of permanent disallowables and adjustments in respect of the prior period with a tax impact totalling £1.5 million (2019: £0.2 million). The Group expects its future underlying effective tax rate to be approximately two to three per cent above the headline rate of corporation tax. This translates to an underlying effective rate for 2021 and thereafter of between 21.0 per cent and 22.0 per cent. The Group does not have any provisions for uncertain tax positions.

In the budget announced in March 2020, the legislation to reduce the main rate of corporation tax to 17 per cent was cancelled and the main rate of corporate tax will remain at 19 per cent from 1 April 2020 and 1 April 2021. The change was substantively enacted at the balance sheet date and is therefore recognised in these financial statements. As a result, the Group recognised a non-underlying taxation credit of £1.1 million through its income statement and a credit of £0.5 million through other comprehensive income to reflect the one off increase in the period of the Group’s deferred tax position.

Following the budget announced on 3 March 2021, the legislation to increase the main rate of corporation tax from 19 per cent to 25 per cent from 1 April 2023 was not substantively enacted at the balance sheet date and so has not been reflected in the deferred tax balances as at 25 December 2020. Each percentage increase in the corporation tax rate would increase deferred tax balances by £1.1 million. Dignity plc Annual Report & Accounts 2020 113

7 Dividends

52 week period 52 week period ended ended 25 December 27 December 2020 2019 £m £m

Final dividend paid: nil per Ordinary Share (2019: 15.74p) – 7.9 Interim dividend paid: nil per Ordinary Share (2019: nil) – –

Dividend on Ordinary Shares – 7.9

The interim dividend represents the interim dividend that was approved and paid in the period out of earnings generated in the same period. No interim dividend was declared in 2020 (2019: nil).

The final dividend in 2019 represents the final dividend that was approved and paid in the period relating to the earnings generated in the previous period.

Consequently, total dividends recognised in the period were £nil million, nil pence per share (2019: £7.9 million, 15.74 pence per share). No final dividend was declared in respect of 2019 totalling £nil million (2019: final dividend in respect of 2018 was 15.74 pence per share totalling £7.9 million). The Group is not proposing any dividend for the period ended 25 December 2020.

8 Earnings per share The calculation of basic earnings per Ordinary Share has been based on the profit attributable to equity shareholders for the relevant period.

For diluted earnings per Ordinary Share, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of any dilutive potential Ordinary Shares.

The Group has two classes of potentially dilutive Ordinary Shares being those share options granted to employees under the Group’s SAYE Scheme and the contingently issuable shares under the Group’s LTIP Schemes. At the balance sheet date, the performance criteria for the vesting of the awards under the LTIP Schemes, including any deferred annual bonus, are assessed, as required by IAS 33, and to the extent that the performance criteria have been met those contingently issuable shares are included within the diluted EPS calculations. As the impact of these shares is anti-dilutive for the 52 week period ended 25 December 2020, no adjustment has been made in respect of arriving at diluted earnings per share measures for that period (2019: no adjustment).

The Group’s underlying measures of profitability exclude non-underlying items, the effects of IFRS 15, consolidation of the Trusts and the adoption of IFRS 16 as set out on pages 156 and 157. These items have been adjusted for in determining underlying measures of profitability as these underlying measures are those used in the day-to-day management of the business and allow for greater comparability across periods.

Accordingly, the Board believes that earnings per share calculated by reference to this underlying performance measure helps users of the financial statements to fully understand the trading performance and financial position of the Group. 114 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

8 Earnings per share (continued)

Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below:

Weighted average number of Per share Earnings shares amount £m millions pence

52 week period ended 25 December 2020

Underlying profit after taxation and EPS 23.3 50.0 46.6 Add: Non-underlying items (net of taxation credit of £2.5 million) ( 5 5 . 9 )‌‌ Add: Other adjustments (net of taxation charge of £1.0 million) (1) 7.1

Loss attributable to shareholders – Basic EPS ( 2 5 . 5 )‌‌ 50.0 ( 5 1 . 0 )‌‌

Loss attributable to shareholders – Diluted EPS ( 2 5 . 5 )‌‌ 50.0 ( 5 1 . 0 )‌‌

52 week period ended 27 December 2019 – restated(2)

Underlying profit after taxation and EPS 30.3 50.0 60.6 Add: Non-underlying items (net of taxation credit of £4.9 million) (28.2)‌‌ Add: Other adjustments (net of taxation charge of £11.0 million)(1) 28.5

Profit attributable to shareholders – Basic EPS 30.6 50.0 61.2

Profit attributable to shareholders – Diluted EPS 30.6 50.0 61.2

(1) See note 3 for further details. (2) Prior year comparatives have been restated due to a prior year adjustment in relation to taxation. See page 96 for further details.

9 Goodwill and other intangible assets

Use of third Non– Trade party brand compete names(1) name Other(2) Software agreements Sub–total Goodwill Total £m £m £m £m £m £m £m £m

Cost

At 28 December 2018 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6

At 27 December 2019 150.4 3.2 4.7 2.5 0.2 161.0 232.6 393.6 Additions – – – 0.2 – 0.2 – 0.2

At 25 December 2020 150.4 3.2 4.7 2.7 0.2 161.2 232.6 393.8

Accumulated amortisation and impairment

At 28 December 2018 (5.4)‌‌ (1.7)‌‌ (0.9)‌‌ (0.5)‌‌ (0.2)‌‌ (8.7)‌‌ – (8.7)‌‌ Amortisation charge (4.2)‌‌ (0.1)‌‌ (0.5)‌‌ (0.2)‌‌ – (5.0)‌‌ – (5.0)‌‌ Trade name impairment (6.8)‌‌ – – – – (6.8)‌‌ – (6.8)‌‌

At 27 December 2019 (16.4)‌‌ (1.8)‌‌ (1.4)‌‌ (0.7)‌‌ (0.2)‌‌ (20.5)‌‌ – (20.5)‌‌ Amortisation charge (4.1)‌‌ (0.2)‌‌ (0.4)‌‌ (0.2)‌‌ – (4.9)‌‌ – (4.9)‌‌ Impairment (15.3)‌‌ – – – – (15.3)‌‌ (28.7)‌‌ (44.0)‌‌

At 25 December 2020 ( 3 5 . 8 )‌‌ ( 2 . 0 )‌‌ ( 1 . 8 )‌‌ ( 0 . 9 )‌‌ ( 0 . 2 )‌‌ ( 4 0 . 7 )‌‌ ( 2 8 . 7 )‌‌ ( 6 9 . 4 )‌‌

Net book amount at 25 December 2020 114.6 1.2 2.9 1.8 – 120.5 203.9 324.4

Net book amount at 27 December 2019 134.0 1.4 3.3 1.8 – 140.5 232.6 373.1

Net book amount at 28 December 2018 145.0 1.5 3.8 2.0 – 152.3 232.6 384.9

(1) Trade names arise on the acquisitions of funeral businesses and their fair value is calculated by reference to the estimated incremental cash flows expected to arise by virtue of the trade name being well-established. There are no individually material trade names that amount to 5 per cent or more of the total net book value. (2) The Group previously acquired interests in two crematoria subject to finite periods of operation (by way of lease and/or service concession). The fair value of these interests has been identified and recognised as a separate intangible asset. The value of each interest will be amortised over the remaining period of operation. Dignity plc Annual Report & Accounts 2020 115

9 Goodwill and other intangible assets (continued)

Impairment tests for goodwill and trade names As described in note 1, goodwill is subject to an annual impairment test in accordance with IAS 36, Impairment of Assets. For the purpose of this impairment test goodwill is tested at a business segment level as this is the level at which the return on assets acquired, including goodwill, is monitored.

The segmental allocation of goodwill is shown below:

25 December 27 December 2020 2019 £m £m

Funeral services 148.1 176.8 Crematoria 55.8 55.8

203.9 232.6

The recoverable amount of each segment is based on a value-in-use calculation.

The value-in-use calculations use cash flow projections derived from the latest annual budget. Key assumptions used to produce the annual budget are the estimated UK death rates (based on historical death rates supplied by ONS), anticipated market share, mix and pricing. The value-in-use calculations for the 2020 model include the approved annual budget for 2021 and a forecast for 2022. Cash flows for all segments beyond the initial 24 month period (2019: 12 month period) are extrapolated using a growth rate of 2.25 per cent (2019: 2.25 per cent), being an estimate of long-term growth rates for impairment review purposes only, which reflects the expectations of long-term inflation and death rates. The cash flows for each segment are discounted at a pre-tax rate of 10.3 per cent (2019: 12.0 per cent).

Goodwill assessment The impairment calculation indicated no impairment in the crematoria division with headroom under the current assumptions used of £99.1 million (2019: £102.9 million). The discount rate would need to increase to 14.1 per cent (2019: increase to 25.8 per cent) or the long-term growth rate would need to fall to minus 1.4 per cent (2019: minus 2.8 per cent) for the impairment test to result in £nil headroom for this segment. The likelihood of such movements in the discount rate and growth rate is deemed unlikely based on current market conditions.

The impairment calculation has also been performed on the funeral services division and an impairment of £28.7 million (2019: £nil) has been recognised within administrative expenses in the Income statement.

If the value-in-use calculations for the funeral services division used a discount rate of 11.3 per cent instead of 10.3 per cent, then the impairment would increase by £40.6 million to £69.3 million. The discount rate would have to reduce to 9.7 per cent to result in no goodwill impairment.

If the value-in-use calculation for the funeral services division used a growth rate of 1.75 per cent instead of 2.25 per cent, then the impairment would increase by £20.3 million to £49.0 million. The growth rate would have to increase to 2.82 per cent to result in no goodwill impairment.

If the value-in-use calculations for the funeral services division used a year one cash flow assumption of £3.0 million less than that forecast, then the impairment would increase by £43.9 million to £72.6 million.

Trade name assessment In addition to the Group’s annual goodwill impairment test, given the changes in the funeral market and a decrease (2019: an increase) in the discount rate to be applied in determining value-in-use, an impairment test was performed in respect of the Group’s trade name intangible assets in accordance with the requirements of IAS 36. A value-in-use calculation has been performed against each recognisable trade name. The performance of this impairment test, which was based on the same cash flow projections and key assumptions as the goodwill impairment test set out above, indicated that an impairment within the funerals segment of £15.3 million (2019: £6.8 million) arose and has been provided accordingly. This is due to lower levels of profitability and lower anticipated average revenue per funeral.

The trade name impairment and the subsequent reduction in net book value has been reflected within the above goodwill impairment calculations to reflect the lower asset base.

If the value-in-use calculations used a discount rate of 11.3 per cent instead of 10.3 per cent, then the impairment would increase by £1.8 million to £17.1 million. If the value-in-use calculations used a growth rate of 1.75 per cent instead of 2.25 per cent, then the impairment would increase by £0.9 million to £16.2 million. If the value-in-use calculations used an initial cash flow assumption of £3.0 million less than that forecast, then the impairment would increase by £2.3 million to £17.6 million. 116 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

10 Property, plant and equipment

Plant, Freehold machinery, land and Leasehold fixtures and Motor Work buildings buildings fittings vehicles in progress Total £m £m £m £m £m £m

Cost

At 28 December 2018 178.7 57.9 53.8 81.6 2.9 374.9 Additions 2.0 1.3 2.3 1.3 10.5 17.4 Disposals (0.5)‌‌ (0.2)‌‌ (0.4)‌‌ (3.1)‌‌ – (4.2)‌‌ Reclassification 1.8 5.2 2.6 – (9.6)‌‌ –

At 27 December 2019 182.0 64.2 58.3 79.8 3.8 388.1

Transferred to right-of-use asset (note 35) – (0.7)‌‌ – – – (0.7)‌‌ Additions 0.7 0.6 3.2 0.1 6.1 10.7 Disposals (0.8)‌‌ (0.7)‌‌ (0.3)‌‌ (1.3)‌‌ – (3.1)‌‌ Reclassification 1.2 1.7 1.5 – (4.4)‌‌ –

At 25 December 2020 183.1 65.1 62.7 78.6 5.5 395.0

Accumulated depreciation

At 28 December 2018 (32.2)‌‌ (18.9)‌‌ (29.4)‌‌ (40.3)‌‌ – (120.8)‌‌ Depreciation charge (5.3)‌‌ (3.2)‌‌ (4.6)‌‌ (6.0)‌‌ – (19.1)‌‌ Disposals 0.2 0.1 0.3 2.5 – 3.1

At 27 December 2019 (37.3)‌‌ (22.0)‌‌ (33.7)‌‌ (43.8)‌‌ – (136.8)‌‌

Transferred to right-of-use asset (note 35) – 0.2 – – – 0.2 Depreciation charge (5.3)‌‌ (3.8)‌‌ (4.9)‌‌ (5.6)‌‌ – (19.6)‌‌ Disposals 0.1 0.5 0.3 1.2 – 2.1

At 25 December 2020 ( 4 2 . 5 )‌‌ ( 2 5 . 1 )‌‌ ( 3 8 . 3 )‌‌ ( 4 8 . 2 )‌‌ – ( 1 5 4 . 1 )‌‌

Net book amount at 25 December 2020 140.6 40.0 24.4 30.4 5.5 240.9

Net book amount at 27 December 2019 144.7 42.2 24.6 36.0 3.8 251.3

Net book amount at 28 December 2018 146.5 39.0 24.4 41.3 2.9 254.1

Depreciation expense of £9.1 million (2019: £8.5 million) is included within cost of sales and £10.5 million (2019: £10.6 million) is included within administrative expenses.

Details of any security over assets are disclosed in note 31.

Additional headings have been included in the consolidated statement of cash flows for property, plant and equipment in order to provide additional information on the different types of expenditure that the Group has incurred during the year.

The Group had capital expenditure authorised by the Board and contracted for at the balance sheet date of £9.6 million (2019: £7.9 million) in respect of property, plant and equipment and intangible assets. Dignity plc Annual Report & Accounts 2020 117

11 Leases

The Group has applied IFRS 16 for the first time within the current period. Comparatives in respect of the 2019 reporting period have not been restated as permitted under the specific transition provisions of the standard. See note 35 for more details on the transition methodology applied.

Right-of-use asset Total £m

At 28 December 2019 101.7 Additions 1.4 Depreciation charge (9.2)‌‌ Impact of changes in lease payments 1.3

At 25 December 2020 95.2

All right-of-use assets are related to leasehold properties.

Lease liability Total £m

At 28 December 2019 93.6 Additions 1.4 Impact of changes in lease payments 1.3 Interest expense 4.7 Payments (12.5)‌‌

At 25 December 2020 88.5

Current 7.3 Non-current 81.2

See note 23 (e) for maturity analysis of lease liabilities. The following are the amounts recognised in the consolidated income statement:

£m

Depreciation expense of the right-of-use asset 9.2 Interest expense on lease liabilities 4.7 Expense related to practical expedients applied 0.2

Total amount recognised in the consolidated income statement 14.1

In addition, £1.4 million has been recognised in the consolidated income statement in respect of contingent rentals and other charges on leases.

The Group had total cash outflows for leases classified under IFRS 16 of £12.5 million. The Group also had non-cash additions to right-of-use assets and lease liabilities of £1.4 million.

Sublease payments received in the period amount to £0.3 million (2019: £0.3 million). Total future sublease payments receivable relating to leases amount to £0.3 million (2019: £0.4 million).

Obligations under IAS 17 leases: 25 December 27 December 2020 2019 £m £m

Obligations under finance leases and hire purchase payable: Within one year – – Between one and two years – – Between two and five years – 0.2 After five years – 0.4

– 0.6

The IAS 17 leases and hire purchase liabilities are secured on the related assets. These liabilities are included in the IFRS 16 lease liability above in 2020. 118 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

12 Investments in associated undertakings

In August 2018 and December 2018, the Group increased its investment in Funeral Zone Limited (‘Funeral Zone’). At 27 December 2019 and 25 December 2020 the Group has a 23.8 per cent investment. Funeral Zone is a UK online funeral resource for funeral directors and clients and has been invested in for its intellectual property opportunities. Funeral Zone is a private entity that is not listed on any public exchange. The registered office of Funeral Zone is Centenary House, Peninsula Park, Rydon Lane, Exeter, EX2 7XE.

The Group holds less than 2 per cent of the voting rights of Funeral Zone but is deemed to have significant influence principally due to having an appointed board member who represents 25 per cent of the Board of Directors and therefore has the power to participate in the financial and operating policy decisions. The Group also hold a call option over a further 44.4 per cent of shares. These potential voting rights are not currently taken into consideration when assessing control as the call option is not considered to be substantive in nature at this time, due to the exercise price of the option. The option is considered to have a £nil fair value at 25 December 2020 for the same reason.

In the prior period the Group performed a review to assess whether there was objective evidence that the carrying value of the investment was impaired. Given ongoing losses recorded by Funeral Zone coupled with the going concern risk of the business, as noted in their most recent financial statements, the Group fully provided against its investment. At 25 December 2020, the company continues to make losses and the investment is still fully provided against.

13 Financial and other assets

25 December 27 December 2020 2019 Note £m £m

Non-current Prepayments (a) 7.2 7.2 Reclassification of prepayments to right-of-use asset on transition of IFRS 16 (7.2)‌‌ –

Prepayments – 7.2 Deferred insurance commissions (b) 10.7 11.0

10.7 18.2

(a) Prepayments This balance represents the amounts paid to acquire the long leasehold interest in land at certain of the Group’s properties. Management consider that leases greater than 50 years at inception are long leases. The balance is expensed on a straight line basis over the term of the relevant lease. The leases expire at various times over the next 30 to 125 years. The balance has been reclassified into right-of-use asset on transition to IFRS 16. See note 35.

(b) Deferred insurance commissions The Group is the named beneficiary on a number of life assurance products sold by third party insurance companies, in consideration for which the Group has committed to performing the funeral (including some disbursements) of the plan holder at a discount to its rates prevailing at the time of death.

14 Financial assets – held by the Trusts

25 December 27 December 2020 2019 £m £m

Financial assets – held by the Trusts 967.1 947.5

The Trusts continue to take independent advice regarding the investment strategy. As a result, it is anticipated that the investment allocation by class will develop further during 2021 and beyond, gradually resulting in a portfolio in the following profile:

Example investment types Target (%)

Defensive investments Index linked gilts and corporate bonds 18 Illiquid investments Private investments 16 Core growth investments Equities 38 Growth fixed income and alternative investments Emerging market debt/ diversified growth 22 Liquid investments Open-ended investment funds 6

The investment strategies are expected to provide returns in excess of inflation in the longer-term but will, however, potentially result in greater volatility year-on-year in the reported value of the Group’s assets. See Operating Review for further details. Dignity plc Annual Report & Accounts 2020 119

14 Financial assets – held by the Trusts (continued)

Analysis of the movements in financial assets held by the Trusts:

25 December 27 December 2020 2019 £m £m

Fair value at the start of the period 947.5 862.4 Remeasurement recognised in the consolidated income statement 41.3 79.5 Investment income 2.2 1.9 Purchases 778.1 736.1 Disposals (796.8)‌‌ (726.6)‌‌ Investment administrative expenses deducted at source ( 5 . 2 )‌‌ (5.8)‌‌

Fair value at the end of the period 967.1 947.5

Interest and dividend income received is included within remeasurements recognised in the consolidated income statement.

15 Inventories

25 December 27 December 2020 2019 £m £m

Materials 0.6 0.5 Finished goods 8.4 7.4

9.0 7.9

During the period a £1.3 million (2019: nil) provision has been charged to the consolidated income statement relating to obsolete PPE.

16 Trade and other receivables

25 December 27 December 2020 2019 £m £m

Trade receivables: Trusts 10.0 11.4 Trade receivables: at-need 21.3 21.8 Less: provision for impairment (note 23(c)) (7.2)‌‌ (6.7)‌‌

Net trade receivables 24.1 26.5 Prepayments and accrued income 3.2 4.2 Other receivables 2.7 1.7

30.0 32.4

Trust trade receivables represent amounts due to the Group’s Trusts in respect of plans sold, where the Group’s performance obligation has yet to be satisfied. Instalments due to the Trusts after the balance sheet date are excluded as they are not contractually due.

At-need trade receivables represent all other trade receivables due to the Group.

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated. Due to this, management believes there is no further credit risk provision required in excess of normal provision for doubtful receivables. For further details of the trade receivables past due and impaired refer to note 23(c).

Due to the short-term nature of these balances, the carrying value is considered to be their fair value. 120 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

17 Cash and cash equivalents

25 December 27 December 2020 2019 Note £m £m

Trading Group 56.7 41.0 Trusts (a) 21.6 15.5

Operating cash as reported in the consolidated statement of cash flows as cash 78.3 56.5 and cash equivalents Amounts set aside for debt service payments (b) 16.9 16.9

Cash and cash equivalents as reported in the balance sheet 95.2 73.4

(a) Trusts cash balances All assets of the Trusts can, by definition, only be used for certain prescribed purposes such as, but not limited to, the payment for a funeral or a refund on cancellation of a plan. They cannot be used for day-to-day operational activities of the wider Trading Group and could not, for example, be used to fund a capital expenditure project. The cash is held in Trust bank accounts but is accessible without restriction and can be used within the Trusts for any allowable purpose, such as payment following the performance of a funeral. As Dignity is considered to control the activities of the Trusts, this cash balance meets the requirements to be included in cash and cash equivalents for the purposes of IAS 7.

(b) Amounts set aside for debt service payments This amount was transferred to restricted bank accounts which could only be used for the payment of the interest and principal on the Secured Notes, the repayment of liabilities due on the Group’s commitment fees due on its undrawn borrowing facilities (see note 23(d)) and for no other purpose. Consequently, this amount did not meet the definition of cash and cash equivalents in IAS 7, Statement of Cash Flows. This amount was used to pay these respective parties on 31 December 2020. Of this amount, £12.0 million (2019: £12.1 million) is shown within the Statement of Cash Flows as ‘Payments to restricted bank accounts for finance costs’ and £4.9 million (2019: £4.8 million) is shown within ‘Financing activities’ as ‘Payments to restricted bank accounts for repayment of borrowings’.

18 Financial liabilities

25 December 27 December 2020 2019 Note £m £m

Current Secured A Notes (a) 15.1 9.6 Lease liabilities (c) 7.3 –

(b) 22.4 9.6

Non-current Secured Notes (a) 526.6 541.7 Lease liabilities (c) 81.2 – Finance lease obligations (c) – 0.6

607.8 542.3

(a) Secured Notes On 17 October 2014, Dignity Finance PLC issued the Secured Notes. Interest is payable on the Secured Notes on 30 June and 25 December of each year.

Transaction costs of £0.3 million and £0.4 million were incurred directly relating to the issue of the Secured A Notes and the Secured B Notes respectively. At 25 December 2020, £0.2 million (2019: £0.2 million) and £0.3 million (2019: £0.4 million) of the transaction costs in respect of the Secured A Notes and the Secured B Notes respectively remain unamortised.

For further details of security over the Secured Notes see note 31(a). Dignity plc Annual Report & Accounts 2020 121

18 Financial liabilities (continued)

The amortisation profile of the Secured Notes is as follows:

Secured A Notes 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 £m £m £m £m £m £m £m £m £m £m

June 5.1 5.2 5.4 5.6 5.8 6.0 6.2 6.4 6.7 6.9 December 5.1 5.3 5.5 5.7 5.9 6.1 6.4 6.6 6.8 7.1

Total 10.2 10.5 10.9 11.3 11.7 12.1 12.6 13.0 13.5 14.0

2031 2032 2033 2034 Total £m £m £m £m £m

June 7.2 7.4 7.7 7.9 89.5 December 7.3 7.6 7.8 8.1 91.3

Total 14.5 15.0 15.5 16.0 180.8

Secured B Notes 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 £m £m £m £m £m £m £m £m £m £m £m

June 8.4 8.7 9.1 9.6 10.0 10.5 11.0 11.5 12.1 12.6 13.2 December 8.5 9.0 9.4 9.8 10.3 10.8 11.3 11.8 12.3 12.9 13.5

Total 16.9 17.7 18.5 19.4 20.3 21.3 22.3 23.3 24.4 25.5 26.7

2046 2047 2048 2049 Total £m £m £m £m £m

June 13.8 14.5 15.2 15.9 176.1 December 14.2 14.8 15.5 16.2 180.3

Total 28.0 29.3 30.7 32.1 356.4

(b) Current financial liabilities The current financial liabilities represent the amounts falling due within one year of the Group’s balance sheet date.

(c) Lease liabilities See note 11 for more details on the Group’s lease liabilities under IFRS 16.

See note 23 (e) for maturity analysis of the Group’s lease liabilities.

(d) Changes in liabilities arising from financing activities

27 December IFRS 16 25 December 2019 transition Cash flow Other 2020 £m £m £m £m(2) £m

Current Secured Notes 9.6 – ( 9 . 6 )‌‌ 15.1 15.1 Lease liabilities(1) – 5.9 ( 1 2 . 5 )‌‌ 13.9 7.3

Non-current Secured Notes 541.7 – – ( 1 5 . 1 )‌‌ 526.6 Lease liabilities(1) 0.6 87.1 – ( 6 . 5 )‌‌ 81.2

Total liabilities from financing activities 551.9 93.0 ( 2 2 . 1 )‌‌ 7.4 630.2

(1) See note 11 for more information on the Group’s lease liabilities under IFRS 16. (2) Other includes reclassification from non-current to current, unwinding of discounts and movement in the lease portfolio in the period. 122 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

18 Financial liabilities (continued)

28 December 27 December 2018 Cash flow Other 2019 £m £m £m £m

Current Secured Notes 9.3 – 0.3 9.6

Non-current Secured Notes 551.3 (9.3)‌‌ (0.3)‌‌ 541.7 Finance lease liabilities 0.6 – – 0.6

Total liabilities from financing activities 561.2 (9.3)‌‌ – 551.9

The ‘other’ column includes the effect of reclassification of the non-current portion of secured notes and finance lease obligations to current due to the passage of time and the effect of not yet paid interest on the Secured Notes. The Group classifies interest paid as cash flows from operating activities.

19 Trade and other payables 25 December 27 December 2020 2019 £m £m

Current Trade payables 5.5 7.5 Tax and social security 3.2 2.8 Other current liabilities 2.9 2.3 Accruals 52.3 44.9 Deferred income relating to at-need deposits 4.8 4.1

68.7 61.6

Non-current Other non-current liabilities 1.6 1.4 Deferred income relating to at-need deposits 0.4 0.5 Deferred consideration for acquisitions 0.1 0.1

2.1 2.0

Accruals includes interest, payroll and trade accruals. Deferred income relating to at-need deposits represents cash amounts received in advance for services such as a funeral arranged at the time of need.

20 Deferred commissions and contract liabilities

Deferred commissions 25 December 27 December 2020 2019 £m £m

Deferred commissions – current 7.6 7.3 Deferred commissions – non-current 101.3 96.8

Deferred commissions represent directly attributable costs in respect of the marketing of the pre-arranged funeral plans where the plan has yet to be used or cancelled. An amount of £7.8 million (2019: £6.4 million) has been amortised to the consolidated income statement within administrative expenses.

Contract liabilities 25 December 27 December 2020 2019 Note £m £m

Current Contract liabilities – deferred revenue (a) 94.4 94.4 Contract liabilities – refund liability (b) 1.1 1.1

95.5 95.5

Non-current Contract liabilities – deferred revenue (a) 1,208.1 1,194.6 Contract liabilities – refund liability (b) 13.9 14.5

1,222.0 1,209.1

Dignity plc Annual Report & Accounts 2020 123

20 Deferred commissions and contract liabilities (continued)

Movement in total contract liabilities 25 December 27 December 2020 2019 £m £m

Balance at the beginning of the year 1,304.6 1,256.1 Sale of new Trust plans 82.0 91.2 Increase due to significant financing 53.1 54.1 Recognition of revenue following delivery or cancellation of a Trust plan ( 1 2 2 . 2 )‌‌ (96.8)‌‌

Balance at the end of the year 1,317.5 1,304.6

(a) Contract liabilities – deferred revenue Deferred revenue represents amounts received from pre-arranged funeral plan holders adjusted to reflect a significant financing component, and for which the Group has not completed its performance obligations at the balance sheet date. The balance is split between current and non-current based on historical experience to reflect the expected number of plans to be utilised within the next 12 months.

(b) Contract liabilities – refund liability Refund liabilities represent amounts received from pre-arranged funeral plan holders for which it is expected that the respective plans will be cancelled based on historical experience. The balance is split between current and non-current based on historical experience to reflect the expected number of plans to be cancelled within the next 12 months.

21 Provisions for liabilities

Onerous Dilapidations contracts (a) (b) Total £m £m £m

At beginning of period 11.2 0.1 11.3 Charged to income statement 1.7 – 1.7 Released to income statement (0.7)‌‌ – (0.7)‌‌ Utilised in period (0.4)‌‌ – (0.4)‌‌ Amortisation of discount 0.1 – 0.1 Reclassification to lease liabilities on transition of IFRS 16 – (0.1)‌‌ (0.1)‌‌

At end of period 11.9 – 11.9

Provisions have been analysed between current and non-current as follows: 25 December 27 December 2020 2019 £m £m

Current 2.4 2.0 Non-current 9.5 9.3

11.9 11.3

(a) Dilapidations The provision for dilapidations covers the costs of repair to leased premises occupied by the Group in respect of which a dilapidations notification has been received, and properties where a dilapidation obligation exists but for which no notification has been received.

It is anticipated that the element of provision relating to dilapidation notices served, £2.4 million (2019: £2.0 million), will be utilised in the following financial year, and the element relating to dilapidation obligations where no notice has been served will be utilised over the terms of the relevant property leases, the majority of which is expected to be by 31 December 2030.

(b) Onerous contracts The Group has provided for the discounted future costs of certain contracts to which the Group is legally bound. These contracts relate to vacant leasehold properties and other contracts from which no economic benefit is derived. The provision is no longer required on the transition to IFRS 16. 124 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

22 Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19 per cent (2019: 17 per cent).

The movement on the deferred tax account is as shown below: 25 December 27 December 2020 2019 £m £m

At beginning of period ( 1 4 . 0 )‌‌ (17.9)‌‌ (Credited)/charged to income statement (note 6) ( 2 . 5 )‌‌ 4.3 Taken to other comprehensive income (note 6) ( 2 . 2 )‌‌ (0.3)‌‌ Restatement of deferred tax for the change in UK tax rate ( 1 . 6 )‌‌ – Taken to equity (note 6) – (0.1)‌‌

At end of period ( 2 0 . 3 )‌‌ (14.0)‌‌

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period are shown below:

Deferred tax liabilities

Deferred commissions Accelerated tax and Trust depreciation Trade names assets Other Total £m £m £m £m £m

At beginning of period 11.8 17.1 183.9 2.7 215.5 (Credited)/charged to income statement (note 6) (2.1)‌‌ (2.1)‌‌ 5.7 0.3 1.8 Restatement of deferred tax for the change in UK tax rate taken to the income statement (note 6) 1.4 2.0 21.6 0.3 25.3

At end of period 11.1 17.0 211.2 3.3 242.6

Deferred tax assets Contract Pensions liabilities Other Total £m £m £m £m

At beginning of period (4.5)‌‌ (224.3)‌‌ (0.7)‌‌ (229.5)‌‌ Charged/(credited) to income statement (note 6) 0.2 (4.3)‌‌ (0.2)‌‌ (4.3)‌‌ Restatement of deferred tax for the change in UK tax rate taken to the income statement (note 6) – (26.3)‌‌ (0.1)‌‌ (26.4)‌‌ Restatement of deferred tax for the change in UK tax rate taken to other comprehensive income (0.5)‌‌ – – (0.5)‌‌ Taken to other comprehensive income/to equity (2.2)‌‌ – – (2.2)‌‌

At end of period ( 7 . 0 )‌‌ ( 2 5 4 . 9 )‌‌ ( 1 . 0 )‌‌ ( 2 6 2 . 9 )‌‌

All of the deferred tax assets were available for offset against deferred tax liabilities and hence the net deferred tax asset at 25 December 2020 was £20.3 million (2019: £14.0 million). The Group has recognised the net deferred tax asset as this is expected to be recovered against future taxable profits.

Other deferred tax liabilities includes capital gains rolled forward and deferred tax on software and leasehold land. Other deferred tax assets includes option schemes, long service awards and finance leases.

Elements of these deferred tax balances may be payable or recoverable within one year. However, the Directors consider that it is not possible to quantify the amount because the level of uncertainty in the timing of events and have therefore classified the whole balance as due after more than one year.

No deferred tax asset has been recognised in relation to £8.6 million (2019: £4.3 million) disallowed interest expense calculated in the annual corporate interest restriction returns due to insufficient evidence to support recognition. Dignity plc Annual Report & Accounts 2020 125

22 Deferred tax (continued)

The deferred income tax credited to other comprehensive income or charged to equity during the period was as follows:

52 week period 52 week period ended ended 25 December 27 December 2020 2019 £m £m

Deferred tax credit on remeasurement losses on retirement benefit obligations ( 2 . 2 )‌‌ (0.3)‌‌ Restatement of deferred tax for the change in UK tax rate ( 0 . 5 )‌‌ –

Total credited to other comprehensive income ( 2 . 7 )‌‌ (0.3)‌‌

Deferred tax credit relating to maturity of option schemes – (0.1)‌‌

Total credited to equity – (0.1)‌‌

23 Financial instruments Fair values of non-derivative financial assets and financial liabilities IFRS 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

Financial assets held by the Trusts are held at fair value. All other financial assets and liabilities are held at amortised cost.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

(a) Fair value of Trust financial assets 25 December 27 December 2020 2019 £m £m

Financial assets at fair value through consolidated income statement Defensive investments – Index linked gilts and corporate bonds 174.3 170.3 Core growth investments – Equities 262.9 268.5 Growth fixed income and alternative investments – Property funds and emerging market debt 417.0 468.6 Liquid investments – Open-ended investment funds 63.0 – Illiquid investments – Private investments 49.9 40.1

Total financial assets at fair value 967.1 947.5

All other financial assets are held at amortised cost and there is no difference between the book value and the fair value of these assets, due to the short-term maturities of these instruments. 126 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

23 Financial instruments (continued)

The following table provides the fair value measurement hierarchy of the Trusts’ financial assets.

Fair value measurement using

Quoted prices Significant Significant in active observable unobservable markets inputs inputs Total (Level 1) (Level 2) (Level 3) 25 December 2020 £m £m £m £m

Defensive investments – Index linked gilts and corporate bonds 174.3 – 174.3 – Core growth investments – Equities 262.9 – 262.9 – Growth fixed income and alternative investments – Property funds and 417.0 – 401.4 15.6 emerging market debt Liquid investments – Open-ended investment funds 63.0 – 63.0 – Illiquid investments – Private investments 49.9 – – 49.9

During the period £64.6 million was transferred out of level 3 into level 2. There were no transfers to/from level 1 during 2020.

Fair value measurement using

Quoted prices Significant Significant in active observable unobservable markets inputs inputs Total (Level 1) (Level 2) (Level 3) 27 December 2019 £m £m £m £m

Defensive investments – Index linked gilts and corporate bonds 170.3 – 170.3 – Core growth investments – Equities 268.5 – 268.5 – Growth fixed income and alternative investments – Property funds and 468.6 – 269.3 199.3 emerging market debt Illiquid investments – Private investments 40.1 – – 40.1

There were no transfers between level 1, level 2 or level 3 during 2019.

The following methods and assumptions were used to estimate the fair values:

Defensive investments – level 2 The fair values of index linked gilts and corporate bonds are based on active market prices or price quotations at the reporting date. Whilst these assets have a quoted price on a recognised exchange, adjustments are required in respect of related inflation factors, thereby making these measurements level 2 rather than level 1.

Core growth investments, growth fixed income and alternative investments & liquid investments – level 2 These represent pooled investment funds that do not have a quoted price on a recognised exchange. The underlying assets of the pooled fund have been valued using active market prices or price quotations at the balance sheet date.

Growth fixed income and alternative investments & illiquid investments – level 3 These investments hold some underlying investment that rely on significant unobservable inputs to price or a premium or discount may apply on exit.

In all cases, fair value information is provided by the investment manager engaged by the Trusts. The Group has no input to, or influence over the valuation methodologies applied by the investment manager.

Within the above reconciliation of financial assets through the consolidated income statement the following movements relate to level 3 assets:

25 December 27 December 2020 2019 £m £m

Fair value at the start of the period 239.4 252.7 Remeasurement recognised in the consolidated income statement ( 2 . 9 )‌‌ 8.3 Purchases – 11.3 Sales ( 1 6 8 . 9 )‌‌ (30.3)‌‌ Investment administrative expenses ( 2 . 1 )‌‌ (2.6)‌‌

Fair value at the end of the period 65.5 239.4

Dignity plc Annual Report & Accounts 2020 127

23 Financial instruments (continued)

At 25 December 2020, the Trust financial assets (all level 2 or 3, fair value of £967.1 million (2019: £947.5 million)) are exposed to market sensitivity and changes in valuation over time due to factors including currency, interest rate and commodity prices. As the fair value information is provided by the investment manager who has not been able to provide sensitivity analysis on the inputs to the fair values, the Group is unable to disclose this information. However, a five per cent movement in the fair value of these assets would result in a £48.4 million (2019: £47.4 million) increase/decrease to the carrying value, with a corresponding movement in an unrealised gain/loss in the income statement. A 10 per cent movement would increase this movement to £96.7 million (2019: £94.8 million).

(b) Fair value of current and non-current financial liabilities

25 December 2020 27 December 2019

Nominal value Book value Fair value Nominal value Book value Fair value £m £m £m £m £m £m

Secured A Notes – 3.5456% maturing 185.8 185.6 199.2 195.5 195.3 209.7 31 December 2034 Secured B Notes – 4.6956% maturing 356.4 356.0 289.2 356.4 356.0 290.0 31 December 2049

Total 542.2 541.6 488.4 551.9 551.3 499.7

The Secured Notes are held at amortised cost. Other categories of financial liabilities include trade payables and contract liabilities, however there is no difference between the book value and fair value of these items.

The fair values of the Secured Notes are their market value at the balance sheet date and are considered to be level 1.

In addition to the above financial liabilities include lease payables of £88.5 million (2019: £0.6 million), which represent the present value of future minimum lease payments. At 25 December 2020 there is no difference between the nominal value, book value and fair value of this liability.

(c) Trade receivables Credit risk Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (at-need trade receivables).

Trade receivables Due to the nature of the Group’s customer base credit risk is managed by obtaining cash payments and/or deposits upfront where possible, setting up direct debt instalment payments from pre-need plan sales, together with staff training and internal control procedures to understand the customers’ ability to pay for services. Outstanding trade receivables are regularly monitored with an established credit control policy in place.

At-need trade receivables are held net of provision for impairment. As at 25 December 2020, £10.2 million of the individual gross at-need trade receivables (2019: £10.7 million) were past due and partially impaired. Receivables are written off to the income statement when credit control procedures have been enforced. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on past experience together with any expected changes. The amount of the provision, as at 25 December 2020, was £7.2 million (2019: £6.7 million). The individually impaired receivables principally relate to monies owing for funerals performed by the funeral services division. The ageing of at-need receivables is as follows:

25 December 27 December 2020 2019 £m £m

One to six months 3.6 5.0 Over six months 6.6 5.7

10.2 10.7

The amount of gross at-need trade receivables past due that were not impaired was not significant.

There is no expected credit loss on trade receivables held by the Trusts on the basis that a separate refund liability is recorded for expected plan cancellations. All amounts outstanding to be paid under a member’s pre-need plan must be paid in full prior to the performance of the services under the plan. In the event of default any write-off would be offset by an equivalent or greater release of the related refund liability. See note 19. 128 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

23 Financial instruments (continued) Movements on the Group’s loss allowance for trade receivables are as follows:

25 December 27 December 2020 2019 £m £m

At beginning of period ( 6 . 7 )‌‌ (6.9)‌‌ Charged to income statement ( 1 . 9 )‌‌ (1.1)‌‌ Utilised in period 1.4 1.3

At end of period (7.2)‌‌ (6.7)‌‌

The maximum exposure to credit risk is the carrying value of each class of financial assets. The Group does not hold collateral as security. Set out below is the information about credit risk exposure on at-need trade receivables using a provision matrix. £10.0 million (2019: £11.4 million) is excluded from the analysis as it relates to trade receivables held by the Trust.

25 December 2020 Days past due

Current 30–60 days 61–90 days 91–180 days >181 days Total

Expected credit loss rate 4.3% 10.1% 24.5% 41.5% 88.3% Estimated total gross carrying amount at default 11.1 1.5 0.8 1.4 6.5 21.3 Expected credit loss 0.5 0.1 0.2 0.6 5.8 7.2

27 December 2019 Days past due

Current 30–60 days 61–90 days 91–180 days >181 days Total

Expected credit loss rate 3.0% 11.0% 25.1% 43.4% 90.9% Estimated total gross carrying amount at default 11.1 2.7 0.9 1.4 5.7 21.8 Expected credit loss 0.3 0.3 0.2 0.6 5.3 6.7

(d) Borrowing facilities The Group has the following undrawn committed borrowing facilities available at 25 December 2020, all of which were at floating interest rates, in respect of which all conditions precedent had been met at that date: 25 December 27 December 2020 2019 £m £m

Expiring within one year 10.0 5.0 Expiring between one and two years – – Expiring in more than two years 55.0 105.0

65.0 110.0

£55.0 million (2019: £55.0 million) of the undrawn facilities available to the Group is a liquidity facility relating to the Class A and B Secured Notes. This facility may only be used to repay interest and principal on the Secured Notes in the event of insufficient cash to service these instruments. The facility is subject to annual renewal. However, if the bank providing the facility does not renew it, then the provider is required to place £55.0 million (2019: £55.0 million) in a bank account, which the Group may access as if it represented a borrowing facility on the same terms. The facility is available on these terms until the Secured Notes have been repaid in full.

Following the sale of various trading assets held outside the Securitisation Group into the Securitisation Group in July 2020, the Group’s revolving credit facility (‘RCF’) was reduced by £40.0 million to £10.0 million (2019: £50.0 million). The RCF is provided by the Royal Bank of Scotland, which is secured against the remaining trade and assets held by legal entities outside of the Group’s securitisation structure.

The facility is available until July 2021, with the option to renew, subject to the bank’s consent at the time, by a further year. The margin on the facility ranges from 150 to 225 basis points over LIBOR depending on the resulting gross leverage. This facility remains undrawn at the balance sheet date. Further details may be found in the Financial Review.

In 2019, the remaining £5.0 million facility was extended for a further 12 months and expired in October 2020 and has not been renewed. These facilities incurred commitment fees at market rates. Dignity plc Annual Report & Accounts 2020 129

23 Financial instruments (continued)

(e) Maturity of financial liabilities The tables below analyse the Group’s financial liabilities, which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows, including interest costs yet to be incurred. The amounts disclosed for contract liabilities relate solely to the refund liability component which is considered to be a financial liability based on the expectation that cash will be returned to the plan holder on the cancellation of the plan. The deferred revenue component of contract liabilities is not considered to be a financial liability as there is no expected obligation to deliver cash. The maturity profile of the refund liability represents the Group’s assessment of the likely timing of such cash flows and the contractual undiscounted cash flow which would occur at that time.

25 December 2020

In more than In more than In more than one year but two years but three years but In less than not more than not more than not more than In more than one year two years three years five years five years Total £m £m £m £m £m £m

Cash liabilities Secured Notes (gross) 15.1 10.6 10.9 23.0 482.6 542.2 Interest payable on Secured Notes 34.7 22.7 22.3 43.5 316.9 440.1 Lease liabilities 11.9 11.0 10.4 19.2 93.7 146.2

Debt repayments 61.7 44.3 43.6 85.7 893.2 1,128.5 Other financial liabilities 68.4 0.4 0.3 0.5 0.7 70.3

130.1 44.7 43.9 86.2 893.9 1,198.8 Refund liability 1.1 1.1 1.1 2.2 9.5 15.0

Total liabilities 131.2 45.8 45.0 88.4 903.4 1,213.8

27 December 2019 – restated

In more than In more than In more than one year but two years but three years but In less than not more than not more than not more than In more than one year two years three years five years five years Total £m £m £m £m £m £m

Cash liabilities Secured Notes (gross) 9.6 15.1 10.6 22.2 494.4 551.9 Interest payable on Secured Notes 23.5 34.7 22.7 44.3 338.4 463.6 Finance leases 0.1 – – 0.1 2.4 2.6

Debt repayments 33.2 49.8 33.3 66.6 835.2 1,018.1 Other financial liabilities 61.4 0.4 0.5 0.6 0.2 63.1

94.6 50.2 33.8 67.2 835.4 1,081.2 Refund liability 1.1 1.1 1.1 2.2 10.1 15.6

Total liabilities 95.7 51.3 34.9 69.4 845.5 1,096.8

Other financial liabilities due in less than one year as at 27 December 2019 has been reduced by £2.7 million to reflect the elimination on consolidation of balances between the Trading Group and the Trusts which was omitted in error in establishing the amount disclosed in the prior period financial statements. Consequently, the above table has been restated.

An administrative fee may be payable by the customer in the event of cancellation and therefore the refund liability may be lower than the total amount detailed above for refund liabilities. The administrative fee payable is dependent upon when the pre-need plan is cancelled, and the type of pre-need plan originally sold. 130 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

23 Financial instruments (continued)

The amounts disclosed in the following tables represent the anticipated amortisation profile for the issue costs relating to the Group’s financial liabilities.

25 December 2020

In more than In more than In more than one year but two years but three years but In less than not more than not more than not more than In more than one year two years three years five years five years Total £m £m £m £m £m £m

Non-cash liabilities Issue costs on Secured Notes – – – – 0.6 0.6

– – – – 0.6 0.6

27 December 2019

In more than In more than In more than one year but two years but three years but not In less than not more than not more than three more than In more than one year two years years five years five years Total £m £m £m £m £m £m

Non-cash liabilities Issue costs on Secured Notes – – – – 0.6 0.6

– – – – 0.6 0.6

24 Ordinary share capital 25 December 27 December 2020 2019 £m £m

Allotted and fully paid Equity shares 50,020,483 (2019: 50,012,394) Ordinary Shares of 12 48/143 pence (2019: 12 48/143 pence) each 6.2 6.2

Each Ordinary Share carries equal voting rights and there are no restrictions on any share.

During the period, the Group received nil consideration in relation to the 7,745 shares issued under the 2017 DABS scheme.

Potential issues of Ordinary Shares Certain employees hold options to subscribe for shares in the Company under an approved Save As You Earn (‘SAYE’) Scheme. In addition, Executive Directors and senior management hold options to subscribe for shares in the Company under Long-Term Incentive Plans (‘LTIPs’), including deferred annual bonus, awarded in 2018, 2019 and 2020.

The total number of outstanding shares subject to options (excluding lapses), the periods in which they were granted and the periods in which they may be exercised are given below:

Exercise price Exercise 2020 2019 2018 Year of grant (pence) period Number Number Number

2019 – SAYE 383.52 1 December 2022 435,664 498,164 n/a to 31 May 2023

2018 – LTIP – 16 March 2020 120,523 146,157 146,157 to 16 March 2027

2019 – LTIP – 23 March 2021 270,904 388,719 n/a to 23 March 2028

2020 – LTIP – 12 June 2022 264,271 n/a n/a to 12 June 2029

Dignity plc Annual Report & Accounts 2020 131

25 Share-based payments

In respect of share-based payments, total charges to the income statement were £1.4 million (2019: £0.8 million). The Group has both LTIP and SAYE schemes, both of which are equity based settled.

LTIP Schemes The LTIP Scheme was introduced after the flotation of the Group in 2004. Under the LTIP Scheme, the remuneration committee can grant options over shares in the Company to employees of the Group. Awards under the LTIP Scheme are generally reserved for the Executive Directors, the Operating Board Directors and senior management. The Company has made annual grants since April 2004. Options granted under the LTIP Scheme will normally become exercisable on the third anniversary of the date of grant, subject to the conditions described on page 75. For the 2019 and 2020 schemes the vested shares must be retained for two years by the Executive Directors and the Operating Board Directors. Exercise of an option is subject to continued employment unless an individual ceases to be an employee by reason of death, illness, redundancy or other similar circumstances.

Options were valued using the Monte Carlo option pricing model. Performance conditions were included in the fair value calculations. The fair value per option granted and the assumptions used in the calculation are as follows:

22 December 13 June 23 March Grant date 2020 2019 2018

Share price at grant date £6.03 £6.33 £8.90 Exercise price – – – Number of employees 36 39 37 Shares under option 264,271(1) 388,719 146,157 Vesting period (years) 3 3 3 Expected volatility 60.2% 45.3% 29% Option life (years) 10 10 10 Expected life (years) 3 3 3 Risk free rate 0.11% 0.78% 1.03% Expected dividends expressed as a dividend yield 0% 3.3% 1.4% Possibility of ceasing employment before vesting 0% 0% 0% Fair value per option £4.63 £3.85 £1.22

(1) 50 per cent of these options relate to total shareholder return with the remaining relating to market share price.

The expected volatility is calculated by reference to historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life.

Reconciliation of LTIP awards:

Outstanding Vested and Outstanding as at Granted Lapsed Forfeited exercised as at Award grant date 27.12.19 during the period during the period during the period during the period 25.12.20

(i) 16.03.17 133,942 – (133,942)‌‌ – – – (ii) 23.03.18 146,157 – – (25,634)‌‌ – 120,523 (iii) 13.06.19 388,719 – – (117,815)‌‌ – 270,904 (iv) 22.12.20 – 264,271 – – – 264,271

The options under the 2018, 2019 and 2020 LTIP Schemes have not yet vested.

During the period nil options under the 2017 scheme were exercised.

The charge to the income statement in the period in respect of the LTIP Schemes was £1.0 million (2019: £0.6 million), all of which are equity based settled. 132 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

25 Share-based payments (continued)

SAYE Scheme One Inland Revenue approved SAYE Scheme was in place during the period. Options were valued using the Black-Scholes option pricing model. No performance conditions were included in the fair value calculations. The fair value per option granted and the assumptions used in the calculation are as follows:

2019 Scheme Grant date 10 October 2019

Share price at grant date £5.33 Exercise price £3.83 Number of employees 901 Shares under option 506,837 Vesting period (years) 3 Expected volatility 47.0% Option life (years) 3.5 Expected life (years) 3 Risk free rate 0.70% Expected dividends expressed as a dividend yield 0% Possibility of failing to save 20% Fair value per option £2.40

During the period 61,542 options (2019: 8,673 options) under the 2019 SAYE Scheme were forfeited and 958 options (2019: nil options) were exercised with a weighted average share price of £3.71.

The charge to the income statement in the period in respect of the SAYE Schemes was £0.4 million (2019: £0.2 million) all of which are equity based settled.

The expected volatility is calculated by reference to historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. The options under the 2019 SAYE Scheme have not yet vested.

26 Net debt

25 December 27 December 2020 2019 £m £m

Net amounts owing on Secured Notes per financial statements ( 5 4 1 . 7 )‌‌ (551.3)‌‌ Add: unamortised issue costs (note 18(a)) ( 0 . 5 )‌‌ (0.6)‌‌

Gross amounts owing ( 5 4 2 . 2 )‌‌ (551.9)‌‌

Accrued interest on Secured Notes ( 1 2 . 0 )‌‌ (12.2)‌‌ Cash and cash equivalents – Trading Group (note 17) 73.6 57.9

Net debt ( 4 8 0 . 6 )‌‌ (506.2)‌‌

Net debt is an alternative performance measure calculated as shown in the table. Net debt excludes any liabilities recognised in accordance with IFRS 16.

The Group’s primary financial covenant in respect of the Secured Notes requires EBITDA to total debt service (‘EBITDA DSCR’), in the securitisation group, to be at least 1.5 times. At 25 December 2020, the actual ratio was 1.99 times (2019: 2.13 times).

These ratios are calculated for EBITDA and total debt service on a 12 month rolling basis and reported quarterly. In addition, both terms are specifically defined in the legal agreement relating to the Secured Notes. As such, they cannot be accurately calculated from the contents of this report. Dignity plc Annual Report & Accounts 2020 133

27 Reconciliation of cash generated from operations

52 week period 52 week period ended ended 25 December 27 December 2020 2019 restated £m £m

Net (loss)/profit for the period(1) ( 2 5 . 5 )‌‌ 30.6 Adjustments for: Taxation(1) 5.9 13.5 Finance costs(2) 76.8 74.2 Profit on sale of fixed assets ( 0 . 1 )‌‌ (1.0)‌‌ Depreciation charges on property, plant and equipment 19.6 19.1 Depreciation charges on right-of-use asset 9.2 – Amortisation of intangibles 4.9 5.0 Movement in inventories ( 1 . 1 )‌‌ 0.6 Movement in trade receivables 2.4 (1.5)‌‌ Movement in trade payables ( 2 . 0 )‌‌ (0.8)‌‌ Movement in contract liabilities ( 4 0 . 2 )‌‌ (5.6)‌‌ Fair value movement on Trust assets(2) ( 4 1 . 3 )‌‌ (79.5)‌‌ Net pension charges less contributions ( 1 . 6 )‌‌ (1.7)‌‌ Trade name impairment (note 9) 15.3 6.8 Goodwill impairment (note 9) 28.7 – Share of loss and impairment in respect of associated undertakings – 6.0 Changes in other working capital (excluding acquisitions) 5.1 (7.7)‌‌ Trust investment administrative expenses deducted at source(3) 5.2 5.8 Employee share option charges (note 25) 1.4 0.8

Cash flows from operating activities 62.7 64.6

(1) Restatement reflects the corporate interest restriction disallowance treated as a prior year adjustment. See note 1 for further details. (2) Restatement reflects the separation of fair value movements on trust assets out of net finance costs/(income) to provide more accurate presentation in line with the consolidated income statement. (3) Restatement reflects the separation of Trust investment administrative expenses deducted at sources out of changes in other working capital to provide more accurate presentation of working capital.

Other non-cash transactions Non-cash charges comprise of amortisation of deferred debt issue costs, as discussed in note 18(a). 134 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

28 Employees and Directors

52 week period 52 week period ended ended 25 December 27 December 2020 2019 £m £m

Wages and salaries 101.9 94.1 Social security costs 9.0 8.5 Other pension costs (note 29) 4.2 4.0 Share option charges (note 25) 1.3 0.8

116.4 107.4

For the period ended 25 December 2020, key management are considered to be the Board of Directors plus the members of the Operating Board. For the period ended 27 December 2019, key management were considered to be the Board of Directors only. Total key management remuneration in the period was £3.0 million (2019: £2.2 million), including £0.2 million (2019: £0.3 million) relating to pensions and £0.4 million (2019: £0.3 million) related to share based payments. The monthly average number of people, including Directors, employed by the Group during the period was as follows: 2020 2019 Number Number restated

Management and administration 286 286 Funeral services staff 2,475 2,548 Crematoria staff 406 420 Pre-arranged funeral plan staff 176 160

3,343 3,414

Directors’ emoluments Details of Directors’ emoluments are disclosed in the Report on Directors’ Remuneration on pages 70 to 80 which form part of these consolidated financial statements.

29 Pension commitments Defined contribution plans The Group contributes to certain individuals’ personal pension schemes. These contributions are accounted for as defined contribution schemes.

Auto enrolment A defined contribution scheme is used to address the Group’s obligations for auto enrolment. Both the employee and the Group contribute four per cent of pensionable pay.

The pension costs for defined contribution schemes are as follows: 2020 2019 £m £m

Defined contribution schemes 3.6 3.5

Defined benefit plan The Group operates a defined benefit scheme the Dignity Pension and Assurance Scheme. A full actuarial valuation was carried out as at 6 April 2018 and subsequent reviews were completed at 6 April 2019 and 6 April 2020. This latest view has been updated to 25 December 2020 by a qualified independent Actuary.

After consultation with members of the defined benefit plan, the Group closed the scheme to new entrants on 1 October 2013 and employee contributions were increased to 10 per cent (from 7 per cent) of pensionable salaries, with the Group contributing the same amount (an increase from 9.2per cent). The plan closed to future accrual on 28 February 2017, except for members of the LGPS sections who continue to accrue benefits. No curtailment charge arose on the scheme closure. Contributions for ongoing service paid by the employer for 2020 were £0.1 million (2019: £0.1 million of contributions). In addition special contributions of £2.1 million (2019: £2.1 million) have been paid to make total contributions for the year of £2.2 million (2019: £2.2 million). Dignity plc Annual Report & Accounts 2020 135

29 Pension commitments (continued)

The principal actuarial assumptions at the balance sheet date were:

2020 2019 Assumptions % %

Discount rate 1.35 1.95 Rate of increase in salaries 2.20 2.20 Pensions increase assumption: RPI capped at 5% p.a. 3.10 3.10 Pensions increase assumption: RPI capped at 2 1/2% p.a. 2.20 2.20 RPI price inflation assumption 3.20 3.20 CPI price inflation assumption – Pre February 2030 2.20 2.20 CPI price inflation assumption – Post January 2030 3.20 2.20

The demographic assumptions used include rates for mortality which, for example, lead to an average projected life expectancy of 22.0 (2019: 19.8) years for male members and 24.3 (2019: 25.1) years for female members currently aged 65 and of 22.9 (2019: 20.7) years from age 65 for male members and 25.4 (2019: 26.3) years from age 65 for female members currently aged 50.

Pensions and other post-retirement obligations The amounts recognised in the balance sheet are determined as follows:

2020 2019 £m £m

Fair value of plan assets 121.6 114.5 Present value of funded obligations ( 1 5 8 . 2 )‌‌ (140.5)‌‌

Net obligation recognised in the balance sheet ( 3 6 . 6 )‌‌ (26.0)‌‌

Analysis of amount charged to income statement in respect of defined benefit schemes 2020 2019 £m £m

Current service cost included within cost of sales (staff costs) 0.1 0.1

Administration expenses paid by the scheme 0.4 0.4

Interest costs less interest income included within net finance cost 0.5 0.7

Analysis of fair value of plan assets 2020 2019

£m % £m %

Equity and diversified growth funds 62.0 51.0 60.6 52.9 Debt 56.8 46.7 53.4 46.6 Cash 2.8 2.3 0.5 0.5

Fair value of plan assets 121.6 100.0 114.5 100.0

At 25 December 2020 and 27 December 2019 the Pension Trustees did not hold, on behalf of the scheme, any direct investments in the Group, nor did the Group occupy any property or other assets included within the fair value of plan assets. 136 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

29 Pension commitments (continued)

Changes in the present value of the defined benefit obligation are as follows: 2020 2019 £m £m

Present value of obligation at beginning of period ( 1 4 0 . 5 )‌‌ (128.7)‌‌ Current service cost ( 0 . 1 )‌‌ (0.1)‌‌ Interest cost ( 2 . 7 )‌‌ (3.5)‌‌ Benefits paid 4.8 5.2 Remeasurement losses – financial ( 1 7 . 4 )‌‌ (16.6)‌‌ Remeasurement (losses)/gains – demographics ( 1 . 9 )‌‌ 2.5 Remeasurement (losses)/gains – experience ( 0 . 4 )‌‌ 0.7

Present value of obligation at end of period ( 1 5 8 . 2 )‌‌ (140.5)‌‌

Changes in the fair value of plan assets are as follows: 2020 2019 £m £m

Fair value of plan assets at beginning of period 114.5 103.5 Interest income on plan assets 2.2 2.8 Contributions by Group 2.2 2.2 Benefits paid (4.8)‌‌ (5.2)‌‌ Administration expenses paid by the scheme(a) ( 0 . 7 )‌‌ (0.6)‌‌ Remeasurement gains/(losses) 8.2 11.8

Fair value of plan assets at end of period 121.6 114.5

(a) Administration expenses paid by the scheme includes £0.2 million charged (2019: £0.2 million charged) to other comprehensive income.

Analysis of the movement in the balance sheet obligation 2020 2019 £m £m

At beginning of period ( 2 6 . 0 )‌‌ (25.2)‌‌ Total expense as above charged to the income statement ( 1 . 1 )‌‌ (1.2)‌‌ Remeasurement losses and administration expenses charged to other comprehensive income ( 1 1 . 7 )‌‌ (1.8)‌‌ Contributions by Group 2.2 2.2

At end of period ( 3 6 . 6 )‌‌ (26.0)‌‌

The actual return on plan assets was £10.5 million (2019: £14.7 million). (Increase)/ decrease in Change in assumptions Liabilities Assets Deficit deficit £m £m £m £m

No change ( 1 5 8 . 2 )‌‌ 121.6 ( 3 6 . 6 )‌‌ – 0.25% rise in discount rate ( 1 5 1 . 3 )‌‌ 121.6 ( 2 9 . 7 )‌‌ 6.9 0.25% fall in discount rate ( 1 6 5 . 4 )‌‌ 121.6 ( 4 3 . 8 )‌‌ (7.2)‌‌ 0.25% rise in inflation ( 1 6 3 . 0 )‌‌ 121.6 ( 4 1 . 4 )‌‌ (4.8)‌‌ 0.25% fall in inflation (153.6)‌‌ 121.6 ( 3 2 . 0 )‌‌ 4.6

The above sensitivity analysis has been determined by applying the results of a fully accurate sensitivity analysis as at 6 April 2020 to the value placed on the Scheme liabilities as at 25 December 2020, assuming that the proportionate impact of the change in assumptions would be the same. It is therefore approximate as it does not allow for the impact of plan experience since 6 April 2020.

Analysis of present value of scheme liabilities 2020 2019

Active members(a) 33% 33% Deferred pensioners 27% 26% Current pensioners 40% 41% Average duration of liabilities 18 years 18.5 years

(a) Active members are members of the Scheme who are still employed by the Group. Dignity plc Annual Report & Accounts 2020 137

29 Pension commitments (continued)

Scheme characteristic The Company currently operates a defined benefits plan, the Dignity Pension & Assurance Scheme. The benefits provided by the Plan are final salary defined benefit benefits with the contributions paid by the Employer on a balance of cost basis. The Plan is run by the Trustees of the Plan who ensure that the Plan is run in accordance with the Trust Deed & Rules and complies with legislation. The Trustees are required by law to fund the Plan on prudent funding assumptions under the Trust Deed & Rules of the Plan. The contributions payable by the Employer to fund the Plan are set by the Trustees after consulting the Employer.

The assets of the Plan are invested in managed funds with Mercer. The managed funds are diversified by fund and by investment strategy.

The Plan closed to future accrual on 28 February 2017, except for members of the LGPS Sections who continue to accrue benefits.

Funding arrangements The Trustees use the Projected Unit funding method. The lastest full valuation is being undertaken as at 6 April 2020.

The Group currently commits deficit contributions of £1,700,000 per annum. Based on the results of the 2017 actuarial valuation, this rate of contributions was projected to eliminate the deficit disclosed by that valuation by 31 March 2024. The initial results of the valuation as at 6 April 2020, suggest this level of contributions will need to be significantly increased.

The employees of the LGPS Section currently contribute to the Plan in line with the rates set out in the Plan Rules and the Employer contributes £45,720 per annum in order to fund future service accrual.

The expenses of administering the Plan and levies required by the Pensions Protection Fund and the Pensions Regulator are currently met by the Scheme. The Group contributes an additional £450,000 per annum in order to fund these expenses.

Funding risks The assets quoted are comprised as follows:

2020 2019 £m £m

Assets held by investment managers 121.0 114.0 Balance of the Trustees’ bank account 0.6 0.5

Total 121.6 114.5

The following list is not exhaustive but covers the main risks for the Plan. Some of the risks can be reduced by adjusting the funding strategy with the help of the Trustees, for example investment matching risk. Other risks cannot easily be removed, for example longevity risk, and the Employer must be aware of these risks and ask the Trustees to monitor them closely.

Investment return risk If the assets under-perform the returns assumed in setting the funding targets then additional contributions may be required at subsequent valuations.

Investment matching risk The Plan invests significantly in equity type assets, whereas the solvency target is closely related to the return on bonds. If equities type assets have fallen in value relative to the matching asset of bonds additional contributions may be required.

Longevity risk If future improvements in mortality exceed the assumptions made then additional contributions may be required.

Legislative risk The Government may introduce over-riding legislation which leads to an increase in the value of Plan benefits.

Solvency risk As the funding target is not a solvency target, and the investment strategy does not follow that required for a solvency target, the assets of the Plan may not be sufficient to provide all members with the full value of their benefits on a plan wind-up. 138 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

30 Pre-arranged funeral plans

(a) Commitments The Trading Group has sold pre-arranged funeral plans to clients in the past, giving commitments to these clients to perform their funeral. All monies from the sale of these funeral plans are paid into and controlled by a number of trusts. These include the Trusts consolidated within the Group’s financial statements in addition to a number of other trusts (the ‘Small Trusts’). The Small Trusts are not consolidated in the Group’s results as the Group does not control these trusts.

The Group is obligated to perform these funerals in exchange for the assets of the respective trusts, whatever they may be. It is the view of the Directors that none of the commitments given to these clients are onerous to the Group. However ultimately, the Group is obligated to perform these funerals in exchange for the assets of the respective trusts, whatever they may be.

The Small Trusts had approximately £16.9 million (2019: £17.5 million) of net assets as at the balance sheet date.

Only the Trusts consolidated within the Group’s financial statements receive funds relating to the sale of new plans.

(b) Actuarial valuation The Trustees of the Trusts are required to have the Trusts’ liabilities actuarially valued once a year. This actuarial valuation is of liabilities of the Trusts to secure funerals through Dignity and other third party funeral directors and does not, in respect of those funerals delivered by the Group represent the cost of delivery of the funeral. Assets of the Trusts include instalment amounts due in the future from clients, as these amounts are payable on death and are therefore relevant to the actuarial valuation. However, this means that assets detailed in the actuarial valuations will not agree on a particular day to the assets recognised in the Group’s consolidated balance sheet because the Group does not include future receivable amounts in the consolidated balance sheet.

The Trustees have advised that the latest actuarial valuations of the Trusts were performed as at 25 September 2020 (2019: 27 September) using assumptions determined by the Trustees. Actuarial liabilities in respect of the Trusts have increased to £995 million as at 25 September 2020 (2019: £987 million). The corresponding market value of the assets of the Trusts was £999 million (2019: £1,004 million) as at the same date. Consequently the actuarial valuations recorded a total surplus of £4 million at 25 September 2020 (2019: surplus of £17 million). The Group considers these to be prudent assumptions.

Active members and assets per plan 25 December 27 December 2020 2019 Number Number

Supported by: The Trusts 319,000 311,000 The Small Trusts 46,000 48,000 Insurance Plans 193,000 164,000

558,000 523,000

The Trusts have approximately £3,400 (2019: £3,300) per active plan. On average the Trading Group received approximately £3,000 (2019: £2,900) in the period for the performance of each funeral (including amounts to cover disbursements such as crematoria fees, ministers’ fees and doctors’ fees).

Insurance Plans are those plans for which the Group is the named beneficiary on life assurance products sold by third party insurance companies.

(c) Transactions with the Group During the period, the Group entered into transactions with the Small Trusts. Amounts may only be paid out of the Trusts in accordance with the relevant Trust Deeds. Transactions (which were recognised as revenue in the funeral division) amounted to £0.9 million (2019: £1.1 million) in the period and principally comprised receipts from the Small Trusts in respect of funerals provided. No amounts were due to the Group on either balance sheet date. Dignity plc Annual Report & Accounts 2020 139

31 Contingent liabilities

(a) Securitisation BNY Mellon Corporate Trustee Services Limited in its capacity as Security Trustee of the Secured Notes has the following guarantees and charges:

• The Dignity (2002) Group have granted the Security Trustee fixed and floating charges over all assets and undertakings of the Dignity (2002) Group;(i) • Dignity plc has granted the Security Trustee, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity (2004) Limited, Dignity (2008) Limited, Dignity (2011) Limited and Dignity Holdings No.3 Limited; • Dignity (2004) Limited has granted the Security Trustee, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Holdings No.2 Limited and Dignity (2002) Limited; • Dignity Holdings No.2 Limited has granted the Security Trustee, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Holdings Limited; • Dignity Holdings Limited has granted the Security Trustee, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Mezzco Limited; • Dignity Holdings Limited has also assigned to the Security Trustee by way of security with full title guarantee, its right title and interest in the loans (both interest and non-interest bearing) to Dignity (2002) Limited; • Dignity Mezzco Limited has also assigned to the Security Trustee by way of security with full title guarantee, its right title and interest in the loan to Dignity (2002) Limited; • Dignity (2004) Limited has granted the Security Trustee, with full title guarantee a floating charge over the assets now or in the future owned by Dignity (2004) Limited (other than those assets validly and effectively charged by way of fixed security); • Dignity plc, Dignity Holdings No.2 Limited, Dignity Holdings Limited and Dignity Mezzco Limited have granted the Security Trustee, with full title guarantee a floating charge over the assets now or in the future owned by each of Dignity plc, Dignity Holdings No.2 Limited, Dignity Holdings Limited and Dignity Mezzco Limited (other than those assets validly and effectively charged by way of fixed security); • The Guarantors(ii) each irrevocably and unconditionally jointly and severally guarantees to the Security Trustee punctual performance by each other Obligor of that Obligor’s obligations and agrees as a primary obligation to indemnify the Security Trustee immediately on demand against any cost, loss or liability suffered by it if any obligation guaranteed by the Guarantors is or becomes unenforceable, invalid or illegal; • Dignity Funerals Limited and Derriman & Haynes Funeral Services Limited have granted the Security Trustee with full title guarantee, a first legal mortgage over each of its rights, title and interest from time to time in properties situated in England and Wales; • Dignity Funerals Limited has granted the Security Trustee with full title guarantee(iii), a first legal mortgage over its rights, title and interest from time to time in properties situated in Northern Ireland; • Dignity Finance PLC has granted BNY Mellon Corporate Trustee Services Limited (in its capacity as Note Trustee) with full title guarantee, an assignment by way of security of its benefit in each Issuer Transaction Document (other than the Trust Documents), the Security Trust Deed and each Obligor Security Document and charges by way of first fixed charge the benefit of its accounts; and • Dignity Funerals Limited has, in respect of any Scottish property which is capable of being so charged, granted ‘standard securities’ in favour of the Security Trustee(iv).

(i) Means Dignity (2002) Limited and its subsidiaries. (ii) Means the Obligors (other than Dignity (2002) Limited (as Borrower)), Dignity (2004) Limited, Dignity plc, Dignity Holdings No.2 Limited, Dignity Holdings Limited and Dignity Mezzco Limited. (iii) This mortgage is governed by the laws of Northern Ireland. (iv) The standard securities are governed by Scots Law.

At 25 December 2020, the amount outstanding in relation to these borrowings was £542.2 million (2019: £551.9 million). 140 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

31 Contingent liabilities (continued)

(b) £10,000,000 Revolving Credit Facility As a consequence of the legal structure of the £10 million Revolving Credit Facility:

• Dignity Funerals No.3 Limited, Dignity Holdings No.3 Limited, Dignity (2008) Limited, Dignity Crematoria Limited and Dignity Crematoria No.2 Limited have each granted NatWest (acting through its agent, the Royal Bank of Scotland plc (‘NatWest’)) fixed and floating charges over its assets and undertakings; • Dignity Funerals No.3 Limited has granted NatWest, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Arthur J Nash Limited, T J Brown & Sons Limited and Aberdeen Funeral Directors Limited; • Dignity (2008) Limited has granted NatWest, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Crematoria Limited; • Dignity Holdings No.3 Limited has granted NatWest, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Funerals No.3 Limited; and • Dignity Crematoria Limited has granted NatWest, with full title guarantee a first fixed charge over the shares (and any monies receivable in respect of the shares) which it holds in Dignity Crematoria No.2 Limited.

32 Related party transactions There are no related party transactions for either period.

33 Investments A list of all entities included within the financial information are included in note C9 to the Company’s financial statements.

34 Post balance sheet events Regulation and the funeral plan market HM Treasury had previously announced that prepaid funeral plans would be subject to regulation by the Financial Conduct Authority (‘FCA’). On 2 March 2021, the FCA published their consultation paper with their proposed approach to regulation.

If the FCA rules are enacted in the way they are currently drafted they will have a profound impact on both the wider industry and Dignity. We welcome the opportunity to work closely with the FCA over the coming months to ensure the rules provide the much needed consumer protection, but also supporting the FCA in their understanding of the potential unintended consequences on the industry as a result of the current drafting.

Tax rate change In the budget on 3 March 2021 by HM Government, legislation to increase the main rate of corporation tax from 19 per cent to 25 per cent from 1 April 2023 was announced. This will be reflected in the Group’s financial results once substantively enacted.

Requisition Notice On 11 March 2021, Dignity plc received a requisition notice pursuant to section 303(1) of the Companies Act 2006 requiring that the Board convenes a general meeting of shareholders for the purposes of considering and, if thought fit, approving resolutions to remove the existing Executive Chairman, Clive Whiley as a Director and appoint Gary Channon as an Executive Director. The Requisition Notice was delivered by Phoenix UK Fund Limited, the Company’s largest shareholder.

The Phoenix UK Fund is managed by Phoenix Asset Management Partners and Mr Channon is the founder and chief investment officer of Phoenix Asset Management Partners.

35 Adoption of IFRS 16 – Right-of-use assets and lease liabilities Background The Group has adopted the requirements of IFRS 16, Leases, for the first time within this Annual Report. The adoption of the standard has had a material impact on the Group’s primary financial statements, including impacts on operating profit, profit before tax, total assets and total liabilities.

IFRS 16 is applicable for accounting periods beginning on or after 1 January 2019. Due to the fact that the Group’s 2019 reporting period began on 29 December 2018 the Group has adopted IFRS 16 retrospectively for its 2020 reporting period beginning on 28 December 2019. Comparatives for the 2019 reporting period have not been restated as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules have therefore been recognised in the opening balance sheet on 28 December 2019.

Approximately 50 per cent of the Group’s properties are on lease terms that were previously accounted for as an operating lease under the principles of IAS 17, Leases. The minimum undiscounted lease commitment on these leases as disclosed in the 2019 Annual Report was approximately £228 million at the end of 2019. Dignity plc Annual Report & Accounts 2020 141

35 Adoption of IFRS 16 – Right-of-use assets and lease liabilities (continued) On adoption of IFRS 16, the Group has recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’. These liabilities are measured at the present value of the remaining lease payments, discounted using the Trading Group’s incremental borrowing rate (‘IBR’) as at 28 December 2019 for a borrowing of similar duration. The weighted average lessee’s IBR applied to the lease liabilities on 28 December 2019 was 4.9 per cent, with a minimum rate of 3.6 per cent and a maximum rate of 6.8 per cent.

The IBRs have been determined as follows: a) We have derived rates based on corporate bond yields to maturity reflecting the Group’s indicative credit rating. In order to assess the Group’s IBRs we considered yield curves at 28 December 2019 for similarly rated listed corporate bonds for durations aligned with the adjusted unexpired lease durations at 28 December 2019. b) An asset/lease specific adjustment is then applied, if needed, to reflect the nature of the lease collateral. Such an adjustment has not been required on transition and we have performed a high level cross check against other indicators of lease pricing to confirm this. Given the specialised nature of Group’s properties there are no direct property market benchmarks and therefore we have looked at retail, industrial and long income sub-sectors to obtain indicative reference points.

On adoption of IFRS 16, the Group has recognised a right-of-use asset representing its right to use the underlying leased asset and a corresponding lease liability for future lease payables for each operating lease in which the Group is a lessee on its consolidated balance sheet.

Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 28 December 2019. Furthermore, assets relating to finance leases held on the balance sheet at 27 December 2019 have been transferred into the right-of-use asset.

The right-of-use asset has been depreciated on a straight-line basis over the life of the lease. Interest has been recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised in the consolidated income statement over the life of the lease will be unaffected by the new standard, however, IFRS 16 will result in the timing of lease expense recognition being accelerated for leases which would be currently accounted for as operating leases.

The lease term comprises the non-cancellable lease term, in addition to optional periods when the Group is reasonably certain to exercise an option to extend or not to terminate a lease.

Transition In order to establish the impact on the Group’s opening consolidated balance sheet for the period ending 25 December 2020, the lease portfolio at transition date has been used, which has resulted in the recognition of right-of-use assets of £101.7 million, with corresponding lease liabilities of £93.6 million.

For the period ending 25 December 2020, operating profit increased by £4.6 million and profit before tax decreased by £0.1 million as the pre-IFRS 16 rental charge was replaced by depreciation, interest charge and a release of accruals and prepayments. The Group’s 2020 current tax charge is unaffected. Furthermore, there will be no impact on profit before tax or the Group’s current tax charge (assuming consistent rates of tax) over the life of the lease portfolio.

At 25 December 2020 the Group held a right-of-use asset of £95.2 million and a corresponding lease liability of £88.5 million. Furthermore, operating costs of £12.1 million were replaced by a depreciation charge of £9.2 million, a release of accruals and prepayments of £1.7 million and a finance cost of £4.7 million. See note 11 for further details.

There will be no impact on the way the Group runs its business, and on a cash basis the Group will pay out less cash due to the reduction in corporation tax. The presentation of the cash flow statement will also change as operating cashflows will include adjustments for depreciation and finance costs, tax paid will decrease/increase (no impact over the life of the lease portfolio) and principal and interest costs will be included under financing activities.

Due to the modified retrospective transition method being applied there has been no deferred tax implications on transition as the right-of-use asset equals the lease liability being recognised, with the exception of a £0.9 million difference relating to prepaid and accrued lease payments and £7.2 million representing amounts paid to acquire the long leasehold interest in land at certain of the Group’s properties. In addition, £0.8 million has been credited to equity on transition, which represents rent reviews not contractually concluded as at 28 December 2019. This £0.8 million credit to reserves is a restatement from the balances reported in the 2020 Interim Report following a more detailed review of the contractual rent reviews. 142 Dignity plc Annual Report & Accounts 2020

Notes to the financial statements continued for the 52 week period ended 25 December 2020 Financial statements

35 Adoption of IFRS 16 – Right-of-use assets and lease liabilities (continued)

Transition roll Below is a reconciliation from previously disclosed operating lease commitments to lease liability on transition:

£m

Operating lease commitments disclosed as at 27 December 2019 227.9 Less: non-IFRS 16 leases and practical expedients ( 6 9 . 2 )‌‌

IFRS 16 qualifying leases – undiscounted 158.7

Group’s weighted average incremental borrowing rate at the date of application (1) 4.9%

Lease liabilities recognised as at 27 December 2019 92.9 Add: finance leases already held under IAS 17 0.6 Add: onerous leases held as provisions 0.1

Lease liability recognised as at 28 December 2019 93.6

Of which: Current lease liability 5.9 Non-current lease liability 87.7

(1) This weighted average rate is based on various lease terms ranging from 1 – 999 years.

The change in accounting policy affected the following items in the balance sheet on 28 December 2019:

27 Dec Impact of 28 Dec 2019 IFRS 16 2019 £m £m £m

Property, plant and equipment (finance leases previously held under IAS 17) 0.5 (0.5)‌‌ – Prepayments (previously held in financial and other assets)(1) 7.2 (7.2)‌‌ – Right-of-use of assets – 101.7 101.7

Total non-current assets 7.7 94.0 101.7

Current lease liability – 5.9 5.9 Non-current lease liability 0.6 87.1 87.7

Total lease liability 0.6 93.0 93.6

(1) Prepayments represent amounts paid to acquire the long leasehold interest in land at certain of the Group’s properties. These were not included within the right-of-use asset transition balance as reported in the 2020 Interim Report. They have now been included as, on further review, this is considered necessary to comply with IFRS 16. Dignity plc Annual Report & Accounts 2020 143

35 Adoption of IFRS 16 – Right-of-use assets and lease liabilities (continued)

Practical expedients applied In applying IFRS 16 for the first time, the Group has applied the following practical expedients permitted by the standard:

• applying a single discount rate to a portfolio of leases with reasonably similar characteristics; • accounting for operating leases with a remaining lease term of less than 12 months from the date of initial application; and • using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

In addition, the Group has applied the low-value asset exemption on transition for existing lease contracts previously classified as operating leases for which the underlying asset rental is below £1,000 per annum.

The above exemptions in relation to lease terms less than 12 months and low-value assets will also be applied on an ongoing basis.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease. 144 Dignity plc Annual Report & Accounts 2020

Dignity plc Company balance sheet As at 25 December 2020 Financial statements

25 December 27 December 2020 2019 Note £m £m

Fixed assets Investments C2 151.3 149.9

Current assets Trade and other receivables C3 285.7 295.3 Cash 48.9 29.8

Total current assets 334.6 325.1

Creditors: amounts falling due within one year C4 ( 1 4 . 2 )‌‌ (15.0)‌‌

Net current assets 320.4 310.1

Total assets less current liabilities 471.7 460.0

Net assets 471.7 460.0

Capital and reserves Called up share capital C5 6.2 6.2 Share premium account 12.7 12.5 Capital redemption reserve 141.7 141.7 Other reserves 4.8 3.7 Retained earnings 306.3 295.9

Total equity 471.7 460.0

The Company has taken advantage of the exemption permitted by section 408 of the Companies Act 2006 not to publish its individual profit and loss account and related notes. The Company made a profit attributable to the equity shareholders of £10.4 million in the period (2019: loss of £12.6 million).

The financial statements on pages 144 to 153 were approved by the Board of Directors on 17 March 2021 and were signed on its behalf by:

C P Whiley, Executive Chairman D R Moore, Interim Chief Financial Officer Dignity plc Annual Report & Accounts 2020 145

Dignity plc Company statement of changes in equity for the 52 week period ended 25 December 2020

Ordinary Share Capital share premium redemption Other Retained capital account reserve reserves earnings Total £m £m £m £m £m £m

Shareholders’ equity as at 28 December 2018 6.2 12.4 141.7 2.7 316.4 479.4 Loss for the period – – – – (12.6)‌‌ (12.6)‌‌ Effects of employee share options – – – 1.1 – 1.1 Proceeds from share issue – 0.1 – – – 0.1 Gift to Employee Benefit Trust – – – (0.1)‌‌ – (0.1)‌‌ Dividends paid on Ordinary Shares – – – – (7.9)‌‌ (7.9)‌‌

Total transactions with owners, recognised directly in equity – 0.1 – 1.0 (7.9)‌‌ (6.8)‌‌

Shareholders’ equity as at 27 December 2019 6.2 12.5 141.7 3.7 295.9 460.0

Profit for the period – – – – 10.4 10.4 Effects of employee share options – – – 1.3 – 1.3 Proceeds from share issue – 0.2 – – – 0.2 Gift to Employee Benefit Trust – – – (0.2)‌‌ – (0.2)‌‌

Total transactions with owners, recognised directly in equity – 0.2 – 1.1 – 1.3

Shareholders’ equity as at 25 December 2020 6.2 12.7 141.7 4.8 306.3 471.7

Capital redemption reserve The capital redemption reserve represents £80,002,465 B Shares that were issued on 2 August 2006 and redeemed for cash on the same day, £19,274,610 B Shares that were issued on 10 October 2010 and redeemed for cash on 11 October 2010, £22,263,112 B Shares that were issued on 12 August 2013 and redeemed for cash on 20 August 2013 and £20,154,070 B Shares that were issued and redeemed for cash in November 2014.

Other reserves Other reserves includes movements relating to the Group’s SAYE and LTIP schemes. 146 Dignity plc Annual Report & Accounts 2020

Notes to the Dignity plc financial statements for the 52 week period ended 25 December 2020 Financial statements

C1 Principal accounting policies

Basis of preparation The financial statements of the Company for the period ended 25 December 2020 were authorised for issue by the Board of Directors and the balance sheet was signed on the Board’s behalf by Mr C P Whiley and Mr D R Moore. The Company is incorporated and domiciled in England and Wales. The Company’s registered address is 4 King Edwards Court, King Edwards Square, Sutton Coldfield, West Midlands, B73 6AP.

The financial statements of the Company have been prepared in accordance with the Companies Act 2006, as applicable to companies using Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’). The financial statements have been prepared on a going concern basis under the historical cost convention. The principal accounting policies are set out below and have been applied consistently throughout the year.

The Company’s financial statements are presented in Sterling and all values are stated in pound million rounded to one decimal place (£m) except where otherwise indicated.

In accordance with the concession granted under Section 408 of the Companies Act 2006, the income statement of the Company has not been separately presented in the financial statements.

In the current period, the Company’s financial statements have been prepared for the 52 week period ended 25 December 2020. For the comparative period, the Company’s financial statements have been prepared for the 52 week period ended 27 December 2019.

Exemptions: As permitted by FRS 101 the following exemptions from the requirements of International Financial Reporting Standards (‘IFRS’) have been applied in the preparation of these financial statements:

• The following paragraphs of IAS 1, ‘Presentation of financial statements’: – 10(d) (statement of cash flows); – 16 (statement of compliance with all IFRS); – 38A (requirement for minimum of two primary statements, including cash flow statements); – 38B-D (additional comparative information); – 111 (cash flow statement information); and – 134-136 (capital management disclosures). • Paragraph 38 of IAS 1 ‘Presentation of financial statements’ comparative information requirements in respect of: Paragraph 79 (a) (iv) of IAS 1 ‘Presentation of financial statements’. • IAS 7, ‘Statement of cash flows’. • Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective). • IFRS 7, ‘Financial instruments: Disclosures’. • Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation). • The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members of a group.

The Company is eligible to apply the above exemptions as it is included in the consolidated financial statements of Dignity plc who prepare financial statements under IFRS and include the above disclosures. Dignity plc Annual Report & Accounts 2020 147

C1 Principal accounting policies (continued)

New standards, amendments and IFRIC interpretations No new accounting standards, or amendments to accounting standards, or IFRIC interpretations that are effective for the year ended 25 December 2020, have had a material impact on the Company.

Critical accounting estimates and assumptions The preparation of the financial statements in conformity with FRS 101 requires management to make estimates, assumptions and judgements in certain circumstances that affect reported amounts. The key judgements affecting the financial statements are detailed below:

Investments in subsidiary undertakings impairment assessment Performing the annual impairment assessment for investments in subsidiary undertakings requires the use of estimates including those in respect of future cash flows, growth rates and an appropriate discount rate as set out in note 9 to the Group’s consolidated financial statements. The assessment is also sensitive to movements in the fair value of the financial assets held within the Trusts and the fair value of the Group’s external debt, as set out in note 23 to the Group’s consolidated financial statements. The current impairment test indicates minimal headroom such that a change in value-in-use arising as a result of change in assumptions, or adverse market change in the fair value of the Trust investments or Group debt, would give rise to an impairment charge of a similar amount.

Fixed asset investments Fixed asset investments are stated at historical cost, less any provision for impairment.

Impairment of fixed assets The carrying values of fixed assets are reviewed for impairment in periods where events or changes in circumstances indicate that the carrying value may not be recoverable or at the end of the first full financial year following the recognition. Any impairment in the value of fixed assets below depreciated historical cost is charged to the income statement within operating profit. A reversal of an impairment loss is recognised in the income statement to the extent that the original loss was recognised.

Employee share schemes The Company operates two employee share schemes: The Save As You Earn Scheme (‘SAYE’) and Long-Term Incentive Plan Scheme (‘LTIP’).

The Company applies IFRS 2 in respect of share option schemes resulting in the charge for such schemes being recognised in a subsidiary of the Company. The Company’s financial statements reflect the cost of the scheme as an increase in the cost of investment in the subsidiary with the corresponding credit included within other reserves.

Employee share trust The assets of the employee share trust are held by a separate limited company, of which the Directors consider that Dignity plc has de facto control. In accordance with IFRS, Accounting for ESOP Trusts and the substance of the transaction, the trust’s assets and liabilities are recognised in the Company’s balance sheet.

Dividends Dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the financial statements when paid.

Financial instruments Borrowings All borrowings and loans are initially recognised at the fair value of consideration received or paid after deduction of issue costs and are subsequently measured at amortised cost. The issue costs and interest payable or receivable on debt finance are charged/credited to the Income statement, as interest payable and similar charges or interest receivable and similar income, on a constant-yield basis over the term of the borrowings, or over a shorter period where it is more likely than not that the lender will require earlier repayment using the effective interest method.

Trade and other receivables Initial recognition and measurement Financial assets are classified at initial recognition, and are subsequently measured, at amortised cost as the Company’s financial assets give rise to cash flows that are solely payments of principal and, where applicable, interest on the principal amount and it is the Company’s business model to collect the contractual cash flows.

Impairment The Company recognises an allowance for expected credit losses (‘ECLs’) for all receivables held at amortised cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. 148 Dignity plc Annual Report & Accounts 2020

Notes to the Dignity plc financial statements continued for the 52 week period ended 25 December 2020 Financial statements

C1 Principal accounting policies (continued)

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12 month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct transaction costs.

Cash and cash equivalents Cash and cash equivalents comprise cash in hand and on demand deposits and amounts included in accounts restricted for specific uses.

C2 Investments in subsidiary undertakings

Cost and net book amount £m

At beginning of period 149.9 Additions in respect of share-based payments 1.4

At end of period 151.3

Additions in the period reflect the effect of capital contributions to subsidiaries as a result of share-based payment schemes operated in those companies over the shares of Dignity plc. A detailed listing of all subsidiary undertakings is included in note C9 below. The market capitalisation of the Company was lower than the aggregate of the amount of the Company’s investment in subsidiaries and receivables from those entities. However, the Directors consider that the carrying value of the investments is supported by their underlying net assets and value-in-use. This assessment is sensitive to assumptions in relation to value-in-use, as set out in note 9 to the Group’s consolidated financial statements, to movements in the fair value of the financial assets held within the Trusts and the fair value of the Group’s external debt, as set out in note 23 to the Group’s consolidated financial statements. The current impairment test indicates minimal headroom such that a change in value-in-use arising as a result of change in assumptions, or adverse market change in the fair value of the Trust investments or Group debt, would give rise to an impairment charge of a similar amount. C3 Trade and other receivables: amounts falling due within one year 25 December 27 December 2020 2019 £m £m

Amounts owed by group undertakings 285.5 295.3 Corporation tax 0.2 –

285.7 295.3

An ECL of £0.3 million is held against amounts owed by group undertakings. There has been no movement in the ECL during the period.

C4 Creditors: amounts falling due within one year 25 December 27 December 2020 2019 £m £m

Amounts owed to subsidiary undertakings 12.4 12.4 Accruals 1.8 1.9 Corporation tax – 0.7

14.2 15.0

C5 Called up share capital and reserves 25 December 27 December 2020 2019 £m £m

Allotted and fully paid Equity shares 50,020,483 (2019: 50,012,394) Ordinary Shares of 12 48/143p (2019: 12 48/143p) each 6.2 6.2

Each Ordinary Share carries equal voting rights and there are no restrictions on any share. See note 24 of the Group’s consolidated accounts for further details. Dignity plc Annual Report & Accounts 2020 149

C6 Dividends

52 week period 52 week period ended ended 25 December 27 December 2020 2019 £m £m

Final dividend paid: Nil per Ordinary Share (2019: 15.74p) – 7.9 Interim dividend paid: Nil per Ordinary Share (2019: nil) – –

Dividend on Ordinary Shares – 7.9

The interim dividend represents the interim dividend that was approved and paid in the period out of earnings generated in the same period. No interim dividend was declared in 2020 (2019: nil).

The final dividend in 2019 represents the final dividend that was approved and paid in the period relating to the earnings generated in the previous period.

Consequently, total dividends recognised in the period were £nil million, nil pence per share (2019: £7.9 million, 15.74 pence per share). No final dividend was declared in respect of 2019 totalling £nil million (2019: final dividend in respect of 2018 was 15.74 pence per share totalling £7.9 million). The Group is not proposing any dividend for the period ended 25 December 2020.

C7 Staff costs

Directors’ remuneration Details of the Directors’ emoluments are included in pages 70 to 80. They received no emoluments in respect of their services to the Company (2019: nil).

C8 Related party transactions There are no related party transactions for either period requiring disclosure. 150 Dignity plc Annual Report & Accounts 2020

Notes to the Dignity plc financial statements continued for the 52 week period ended 25 December 2020 Financial statements

C9 Subsidiary undertakings

Principal subsidiaries Company name Principal activity Advance Planning Limited Pre-arranged funeral plans Dignity (2002) Limited Intermediate holding company Dignity Crematoria Limited Construction and leasing of crematoria Dignity Crematoria No.2 Limited Construction and leasing of crematoria Dignity Finance PLC Finance company Dignity Funerals Limited Funeral services Dignity Funerals No.3 Limited Funeral services Dignity Pre Arrangement Limited Pre-arranged funeral plans Dignity Securities Limited Pre-arranged funeral plans Pitcher & Le Quesne Limited*** Funeral services

Other subsidiaries Company name Principal activity Birkbeck Securities Limited Intermediate holding company Dignity (2004) Limited Intermediate holding company Dignity (2008) Limited Intermediate holding company Dignity (2011) Limited Intermediate holding company Dignity (2014) Limited Intermediate holding company Dignity Finance Holdings Limited Intermediate holding company Dignity Holdings Limited Intermediate holding company Dignity Holdings No.2 Limited Intermediate holding company Dignity Holdings No.3 Limited Intermediate holding company Dignity Mezzco Limited Finance company Dignity Services Intermediate holding company Valedictum Limited Non-trading company

Dignity plc Annual Report & Accounts 2020 151

C9 Subsidiary undertakings (continued)

Dormant companies

A & N Duckworth Limited Cooksey & Son Limited F L Mildred & Sons (Funeral Directors) Limited A Ashton & Sons Limited Cooksley & Son Limited F. Kneeshaw & Sons (Funeral Directors) A Bennett & Sons Limited Coombes & Sons (Bovey Tracey) Limited Limited A F Townsend (Funeral Directors) Limited Counties Crematorium Limited F.E.J. Green & Sons Limited A Hazel & Sons Limited Coyne Brothers Limited F.G.Pymm (Funeral Directors) Limited A Shepherd & Sons Limited Cumbernauld Funeral Services Ltd* F.Harrison & Son (Funeral Directors) Limited A T Genders Limited Cyril H. Lovegrove Limited F. J. Gibb Limited A V Band Limited F.M. & J. Wait & Co Limited D J Thomas (Funeral Directors) Limited A. & G. Huteson Ltd F. Jennings & Sons Limited D. J. Evans Forse & Co Limited A Haxby & Sons (Filey) Limited F.Smith & Son (Staines) Limited D. Walsh & Son Limited Abbey Funeral Service Limited Family Funeral Services Limited Daly & Company Limited Adela Funeral Homes Limited Farebrother Funeral Services Limited David B Hendry Limited Aberdeen Funeral Directors Limited* Fisher & Townsend (Funeral Directors) Limited David Silvey & Son Limited Anglian Funeral Service Limited Flowers By Design Limited Davis McMullan Funeral Directors Limited Armitage (Funeral Directors) Limited Ford Ennals Funeral Services Limited Derriman & Haynes Funeral Services Limited Arthur Denyer Limited Forethought Limited Dewi Reynolds & Sons Limited Arthur G Whitehead (Westminster) Limited Francis Chappel & Sons Limited Dignity (2009) Limited Ashton & Ebbutt Limited Frank Stephenson & Son (Funeral Directors) Dignity Caring Funeral Services Limited Ashton Ebbutt Holdings Limited Limited Dignity Funerals No.2 Limited Ashton Memorials Limited Frederick W Chitty & Co Limited Dignity Funerals No.4 Limited Ashtons (Brighton) Limited Fredk. W.Paine Limited Dignity In Destiny Limited Associated Funeral Services Limited Funeral Arrangements Online Limited Dignity Legal Services Limited Astley Funerals Limited Funeral Debt Collection Limited Dignity Manufacturing Limited Arthur J. Nash Limited Funeral Services London Limited Dillistone Funeral Service Limited B & B Funeral Directors Limited Docklands Funeral Services Limited G & L Evans Ltd B. Bernard & Sons Limited Dottridge Brothers Limited G. M. Charlesworth & Son Limited Baguley Bros. Limited Downer & White Limited G.F. Cook (Funerals) Limited Banks Funeral Service Limited Downs Crematorium Limited G.F.Hunt (Bath) Limited Bayley Brothers Hereford Limited Dowsett & Jenkins Limited G.Gamble & Son Limited Birmingham Crematorium (1973) Limited Dundee Crematorium Limited* G.Smith (Wooburn) Limited Boyce Anderson Motors Limited** Dunning (Undertaking) Limited George Hall & Son Funeral Directors Limited Bracher Brothers Limited Dyson Richards Limited George S. Munn & Company, Limited* Brighton Stonemasons Limited George Stanton (1935) Limited E Hurton & Son Limited Broadwater Limousines Limited Ginns & Gutteridge Limited E M Lander Limited Gornalls Funeral Services Limited C Powell Funeral Service Limited E Seymour & Son Limited Graeme Buckle Funeral Services Limited Caledonian Funeral Services Limited* E. Brigham Funeral Directors Limited Graham Sullivan Funeral Directors Limited Carrwood Funeral Supplies Limited E.F.Edwards Limited Grave Design Limited Castle Court Funeral & Limousine Services E.Finch & Sons Limited Great Southern Group Limited Limited Earl Of Plymouth Limited Grimmett & Timms Limited Chichester Crematorium Limited Eden Park Estate Limited Chosen Heritage (Scotland) Limited* Edmund & Lewis Limited Chosen Heritage Limited Edward Lewis Wicks & Sons Limited Chosen Heritage Services Limited Ely Funeral Service Limited Clegg Humphreys Limited Exeter & Devon Crematorium Limited 152 Dignity plc Annual Report & Accounts 2020

Notes to the Dignity plc financial statements continued for the 52 week period ended 25 December 2020 Financial statements

C9 Subsidiary undertakings (continued)

Dormant companies (continued)

H & G Wilde Funeral Directors Limited John Bardgett & Sons Limited N A Medd Limited H A Harrold & Son Limited John G Ashton & Co (Funeral Directors) National Funeral Trust Limited H Eaton & Sons Holdings Limited Limited Newport & Telford Funeral Service Ltd H.Eaton & Sons Limited Johnson Funeral Supplies Limited Newport Hire (I.W.) Limited H J Dawson Limited Johnson-Sears Limited Newsome’s Funeral Service (Royston) Limited H J Phillips & Son (Funeral Directors) Limited Jonathan Harvey Limited Nicholls Memorials Limited H Johnson & Sons Limited Jonathan Walker Funeral Directors Limited Norfolk Crematorium Limited H Leslie Humphreys Limited Joseph Swift (Funeral Director) Limited Northampton Crematorium Limited H Tonkin Limited Joseph Tomlinson & Sons Limited Norwich Crematorium Holdings Limited H. J. Whalley & Sons Limited Joslin Memorials (1974) Limited Norwich Crematorium Limited H. Towell Ltd Nubian Funeral Directors Limited K.Y. Green Limited H.Copeland & Son Limited Kellaways (Funeral Service) Limited Oxford Crematorium Limited H.Dorricott & J.Bent Limited* Ken Gregory & Sons Limited H.G.Brown & Sanders Limited Patrick Stonemasons Limited Kent Funeral Supplies Limited H.Hill Funeral Service Limited Personal Choice Funeral Plan Limited Kenyon Air Transportation Limited H.R.H. Holdings Limited Peter Johnson Funerals Ltd. Kenyon Emergency Services Limited Hambrook & Johns Limited PFG Hodgson Kenyon (Services) Limited Kenyon Repatriation Limited Hanningtons (Funeral Directors) Limited PFG Hodgson Kenyon (UK) Limited Kenyon Securities Limited Hardacres Funeral Directors Limited PFG Hodgson Kenyon Limited Kenyons Funeral Directors Limited Harry Williams & Sons (Cambridge) Limited Philip Ford & Son (Funeral Directors) Limited Kirkwoods (Funeral Directors) Limited** Heighton & Son Limited Phillips Funeral Plans Limited Hemley Funeral Service Limited L Fulcher Limited Phillips Funeral Services Limited Henry Naylor (Funeral Directors) Limited L J Clegg Limited Phillips Holdings (Hertfordshire) Limited Henry Paul Limited Lambeth & Brixton Community Funeral Phillips Supplies Limited Henry Smith (Wandsworth) Limited Services Limited Piccioni (Masonry) Limited Highfield Funeral Service Limited Lambeth Funeral Services Limited Plantsbrook Group Limited Hindu Funeral Service Limited Lea Valley Funeral Services Limited Plantsbrook Limited Hodgson Holdings (Scotland) Limited Leeds Limousines Limited Preston Ireland Bowker Limited Hodgson Holdings Limited Leehope Services Limited Priestley & Cockett Limited London Necropolis Company Limited Holdfast (Funerals) Limited** R Butler & Sons Limited Longhurst (Undertakers) Limited Howard Jenkins (Edge Hill) Limited R C Holden & Son Limited Lowden Wells Limited Hunters Funeral Directors Limited R Garner Son & Wood Limited Ian Clarke Funeral Service Limited MacIntosh & Steven Limited* R.Davies & Son Limited Ingall Services Limited Mahony & Ward Limited R.S. Johnson & Sons Limited Inverclyde Funeral Directors Limited* Malcolm J Presland Limited R.S.Scott (Funerals) Limited Invicta Memorials Limited Mannerings Limited Ravenhill Funeral Services Limited** Mason Funeral Service Limited Remembrance Limited J H Kenyon Limited Mathias’s of Putney Limited Robemanor Limited J H Raven Limited Maxwell Bros. Limited Robert Nicholls Funeral Directors Limited J Hylton & Sons Limited Meadow Pool Limited Roberts & Brain Limited J Kynaston Limited Mews & Yeatmans Limited Romney Marsh Funeral Services Limited J Steadman & Sons Limited Mid Sussex Funeral Services Limited Rosspark Limited J.W.Tate & Son (Holdings) Limited Middleton & Wood (1919) Limited J.W.Tate & Son Limited Monumental Masons Limited Jack Lee & Sons Limited Moodys Funeral Directors Limited James Allen & Son (Disley) Limited Moray Crematorium Holdings Limited* James Crook Limited Moray Crematorium Limited* John & William Shering Limited Morecambe & Heysham Funeral Service Limited Dignity plc Annual Report & Accounts 2020 153

C9 Subsidiary undertakings (continued)

Dormant companies (continued)

S A Bates & Sons Limited Thompsons (Busbys) Limited S Wellens & Sons Limited Thompsons (Funeral Furnishers) Limited Saftway Limited Thompsons (Maguires) Limited Salenew Limited Thompsons (Rimmers) Limited Sanders Goodale & Co.Limited Tovey & Morris Limited SCI Pre Arrangement Limited U.F.D. Limited Seaford Funeral Service Limited UK Funerals Limited Seddons of Southport Limited UKF Limited Selim Smith & Co. Limited Serenity Limited Valedictum Holdings Limited Sevenoaks District Crematorium Limited Valedictum Group Limited Shankill Funeral Services Limited** Valedictus Limited** Silver Lady Funeral Service Limited Valedictus Holdings Limited** Simplicity Funerals Limited Valedictus Group Limited** Simpsons (Undertakers Requisites) Limited W G Dixon Limited Spotland Bridge Funeral Services Limited W G Rathbone Funeral Directors Limited Stanway & Garnett Funeral Service Limited W H Scott & Son Limited Swift & Mildred Limited W S Bond Limited T & R O’Brien Limited* W S Harrison & Son Limited T H Fenton Limited W Thorp & Sons (Leigh-on-Sea) Limited T S Annison & Sons Limited W.E.Turner (Funeral Furnishers) Limited T. S. Horlock & Son Limited W.Garstin & Sons Limited T.H.Sanders & Higgs Limited Walkers Funeral Directors Limited T.H.Sanders & Sons Limited Walmsley Hammond (Rayleigh) Limited T J Brown & Sons Limited Warburton Funerals Limited T.J.Davies & Sons (Funeral Directors) Limited Wetton Funeral Services Limited Taylors Funerals (Wirral) Limited White Lady Funerals Limited The Crematorium Company Limited Whyte Funeral Services Limited* The Dignity Plan Limited William Pearce & Son Limited The East Riding Crematorium Company Wilmshurst & Dickson Limited Limited WM. Jordan & Son (Funeral Directors) Limited* The Haltemprice Crematorium Limited Woodfield Park Funeral Home Limited The Lawrence Funeral Service Limited Wrekin Funeral Service Limited The Leverton Funeral Service (Dartford) Yew Holdings Limited Limited The South London & Southern Counties Cremation Society Limited The South London Crematorium Co Limited The Titford Funeral Service Limited Thomas Brothers (Wellington and Taunton) Limited

Registered office * The registered office for these subsidiaries is 280 Kinfauns Drive, Glasgow, G15 7AR ** The registered office for these subsidiaries is 14 Scotch Quarter, Carrickfergus, County Antrim, BT38 7DP *** The registered office for this subsidiary is 59 Kensington Place, St Heller, JE2 3PA, Jersey All other subsidiary undertakings are registered at 4 King Edwards Court, King Edwards Square, Sutton Coldfield, West Midlands, B73 6AP. Other information All of the subsidiaries are incorporated in the United Kingdom except for Pitcher & Le Quesne Limited which is incorporated in Jersey. All subsidiaries are controlled by the Group. All of the above shareholdings are held indirectly, with the exception of Dignity (2004) Limited, Dignity (2008) Limited, Dignity (2011) Limited and Dignity Holdings No.3 Limited. Dignity plc owns, either directly or indirectly, 100 per cent of the equity interest of all the subsidiaries. 154 Dignity plc Annual Report & Accounts 2020

Financial record(a) Financial statements

Summarised consolidated income statement

2019 2020 restated 2018 2017(c) 2016(d) £m £m £m £m £m

Underlying revenue

Funeral services 202.6 203.3 214.9 221.8 217.8 Crematoria 82.7 76.8 78.0 74.0 67.5 Pre-arranged funeral plans 28.8 21.2 22.7 28.2 28.3 314.1 301.3 315.6 324.0 313.6 Underlying operating profit

Funeral services 50.0 56.3 62.2 79.5 79.0 Crematoria 42.8 38.4 40.3 40.0 37.6 Pre-arranged funeral plans – – 2.8 8.0 8.5 Central overheads ( 3 7 . 1 )‌‌ (31.4)‌‌ (25.1)‌‌ (22.9)‌‌ (23.4)‌‌ 55.7 63.3 80.2 104.6 101.7

Underlying finance costs ( 2 5 . 1 )‌‌ (25.8)‌‌ (26.0)‌‌ (26.9)‌‌ (26.9)‌‌ Underlying finance income 0.1 0.2 0.2 0.1 0.4

Underlying profit before tax 30.7 37.7 54.4 77.8 75.2 Underlying taxation ( 7 . 4 )‌‌ (7.4)‌‌ (11.5)‌‌ (13.8)‌‌ (15.8)‌‌ Underlying profit after tax 23.3 30.3 42.9 64.0 59.4 Underlying earnings per share (pence) 46.6p 60.6p 85.8p 128.3p 119.8p Revenue 357.5 338.9 353.7 324.0 313.6 Operating profit 15.9 44.8 75.9 98.0 97.7 Profit/(loss) after tax ( 2 5 . 5 )‌‌ 30.6 (17.0)‌‌ 57.8 57.2 Basic earnings/(loss) per share (pence) (51.0)p‌ 61.2p (34.0)‌p 115.8p 115.3p

Key performance indicators 2020 2019 2018 2017 2016

Total estimated number of deaths in Britain (number) 663,000 584,000 599,000 590,000 590,000 Number of funerals performed (number) 80,300 69,400 72,300 68,800 70,700 Funeral market share(b) (per cent) 12.0% 11.7% 11.9% 11.5% 11.8% Number of cremations performed (number) 74,500 64,800 65,200 63,400 59,500 Cremation market share (per cent) 11.2% 11.1% 10.9% 10.7% 10.1% Active pre-arranged funerals (number) 558,000 523,000 486,000 450,000 404,000 Underlying cash generated from operations (£million) 76.4 71.8 101.9 115.4 121.1

Net debt 2020 2019 2018 2017 2016 £m £m £m £m £m

Net amounts owing on Secured Notes per ( 5 4 1 . 7 )‌‌ (551.3)‌‌ (560.6)‌‌ (565.1)‌‌ (573.9)‌‌ financial statements Add: unamortised issue costs ( 0 . 5 )‌‌ (0.6)‌‌ (0.6)‌‌ (0.6)‌‌ (0.7)‌‌

Gross amounts owing ( 5 4 2 . 2 )‌‌ (551.9)‌‌ (561.2)‌‌ (565.7)‌‌ (574.6)‌‌ Net amounts owing on Crematoria Acquisition Facility per financial statements – – – – (15.7)‌‌ Add: unamortised issue costs on Crematoria Acquisition Facility – – – – (0.1)‌‌

Gross amounts owing ( 5 4 2 . 2 )‌‌ (551.9)‌‌ (561.2)‌‌ (565.7)‌‌ (590.4)‌‌

Accrued interest on Secured Notes ( 1 2 . 0 )‌‌ (12.2)‌‌ (12.3)‌‌ (0.3)‌‌ (0.3)‌‌ Accrued interest on Crematoria Acquisition Facility and Revolving Credit Facility – – (0.2)‌‌ (0.2)‌‌ (0.1)‌‌ Cash and cash equivalents – Trading Group 73.6 57.9 66.9 49.3 67.1

Net debt ( 4 8 0 . 6 )‌‌ (506.2)‌‌ (506.8)‌‌ (516.9)‌‌ (523.7)‌‌

Dignity plc Annual Report & Accounts 2020 155

Summarised consolidated balance sheet 2019 2020 restated 2018 2017 2016(d) £m £m £m £m £m

Non-current assets Goodwill and intangible assets 324.4 373.1 384.9 385.5 358.1 Property, plant and equipment 240.9 251.3 254.1 248.0 235.4 Right-of-use asset 95.2 – – – – Investments in associated undertakings – – 6.0 – – Financial and other assets 10.7 18.2 15.7 14.3 11.3 Financial assets – held by the Trusts 967.1 947.5 862.4 865.6 – Deferred commissions 101.3 96.8 94.5 92.4 – Deferred tax asset 20.3 14.0 17.9 6.8 –

1,759.9 1,700.9 1,635.5 1,612.6 604.8

Current assets

Cash and cash equivalents – Trading Group 73.6 57.9 66.9 49.3 67.1 Cash and cash equivalents – held by the Trusts 21.6 15.5 13.8 21.8 – Cash and cash equivalents 95.2 73.4 80.7 71.1 67.1 Other current assets 46.6 47.6 46.9 49.6 43.1

141.8 121.0 127.6 120.7 110.2

Total assets 1,901.7 1,821.9 1,763.1 1,733.3 715.0

Current liabilities Financial liabilities 15.1 9.6 9.3 4.5 8.8 Contract liabilities 95.5 95.5 91.5 88.3 – Lease liabilities 7.3 – – – – Other current liabilities 79.8 69.6 73.0 62.8 66.3

197.7 174.7 173.8 155.6 75.1

Non-current liabilities Financial liabilities 526.6 542.3 551.9 561.2 581.5 Contract liabilities 1,222.0 1,209.1 1,164.6 1,117.3 – Lease liabilities 81.2 – – – – Other non-current liabilities 48.2 37.3 36.7 34.2 61.9

1,878.0 1,788.7 1,753.2 1,712.7 643.4

Total liabilities 2,075.7 1,963.4 1,927.0 1,868.3 718.5

Total deficit ( 1 7 4 . 0 )‌‌ (141.5)‌‌ (163.9)‌‌ (135.0)‌‌ (3.5)‌‌

Total deficit and liabilities 1,901.7 1,821.9 1,763.1 1,733.3 715.0

NOTES (a) This information has been extracted from the current and previous Annual Reports and accordingly does not constitute audited information. (b) Market share excluding funerals performed in Northern Ireland. (c) 2017 income statement has not been restated for the impact of IFRS 15 or the consolidation of the Trusts. (d) 2016 has not been restated for the impact of IFRS 15 or the consolidation of the Trusts. 156 Dignity plc Annual Report & Accounts 2020

Alternative performance measures Other information

Non-GAAP measures

(a) Alternative performance measures The Board believes that whilst statutory reporting measures provide financial performance of the Group under GAAP, alternative performance measures are necessary to enable users of the financial statements to fully understand the trading performance and financial position of the business.

The alternative performance measures provided are aligned with those used in the day-to-day management of the business and allow for greater comparability across periods.

For this reason, the alternative performance measures provided exclude the impact of consolidating the Trusts, the corporate interest restriction disallowance arising as a result of consolidating the Trusts, the changes which relate to the application of IFRS 15 and adoption of IFRS 16. In addition, the deferred tax rate change in 2020 arising on the deferred tax balances on consolidating the Trusts and application of IFRS 15 have also been included. All of the above are considered to mask the underlying trading performance of the Group, as well as non-underlying items comprising certain non-recurring and non-trading transactions.

IFRS 16 has been included within the alternative performance measures for 2020 only. This is due to the modified retrospective adoption of the standard, meaning the 2019 comparatives have not been restated and therefore are not comparable.

Calculation of underlying reporting measures Underlying revenue and profit measures (including divisional measures) are calculated as revenue and/or profit before non- underlying items and other adjustments.

Underlying net finance costs are calculated before the application of IFRS 15 and the adoption of IFRS 16 and the impact of consolidating the Trusts. See note 4.

Underlying earnings per share is calculated as profit after taxation, before non-underlying items and other adjustments (both net of tax), divided by the weighted average number of Ordinary Shares in issue in the period.

Underlying cash generated from operations excludes non-underlying items and other adjustments on a cash paid basis.

(b) Non-underlying items The Group’s underlying measures of profitability exclude:

• amortisation of acquisition related intangibles; • external transaction costs; • profit or loss on sale of fixed assets (net of any insurance proceeds received); • Transformation Plan costs (see below); • Directors severance pay; • operating and competition review costs; • trade name impairments; • goodwill impairments; and • the taxation impact of the above items together with the impact of taxation rate changes.

Non-underlying items have been adjusted for in determining underlying measures of profitability as these underlying measures are those used in the day-to-day management of the Group and allow for greater comparability across periods. Dignity plc Annual Report & Accounts 2020 157

Non-GAAP measures (continued) Transformation Plan costs Cost incurred in relation to the Group’s now abrogated Transformation Plan has resulted in significant, directly attributable non-recurring costs and these amounts are excluded from the Group’s underlying profit measures and treated as a non- underlying item.

These costs include, but are not limited to:

• external advisers’ fees; • directly attributable internal costs, including staff costs wholly related to the Transformation (such as the Transformation Director and project management office); • costs relating to any property openings, closures or relocations; • rebranding costs; • speculative marketing costs; and • redundancy costs.

Funeral Pre-arranged Central services Crematoria funeral plans overheads Group 52 week period ended 25 December 2020 £m £m £m £m £m

Non-trading Amortisation of acquisition related intangibles 4.1 0.4 0.1 – 4.6 External transaction costs in respect of completed and 0.2 – – 0.6 0.8 aborted transactions Profit on sale of fixed assets – ( 0 . 2 )‌‌ – – ( 0 . 2 )‌‌ Non-recurring Transformation Plan costs – – – 4.7 4.7 Directors severance pay – – – 1.6 1.6 Operating and competition review costs – – – 2.9 2.9 Trade name impairment 15.3 – – – 15.3 Goodwill impairment 28.7 – – – 28.7

48.3 0.2 0.1 9.8 58.4 Taxation ( 6 . 1 )‌‌ Taxation – rate change 3.6

55.9

52 week period ended 27 December 2019

Non-trading Amortisation of acquisition related intangibles 4.2 0.5 0.1 – 4.8 External transaction costs in respect of completed and – 0.7 0.1 0.1 0.9 aborted transactions Profit on sale of fixed assets (1.0)‌‌ – – – (1.0)‌‌ Non-recurring Transformation Plan costs – – – 12.1 12.1 Operating and competition review costs – – – 3.5 3.5 Trade name impairment 6.8 – – – 6.8

10.0 1.2 0.2 15.7 27.1 Group’s share of loss of associated undertakings 0.6 Impairment of investments in associated undertakings 5.4 Taxation (4.9)‌‌

28.2

158 Dignity plc Annual Report & Accounts 2020

Alternative performance measures continued Other information

Non-GAAP measures (continued)

(c) Other adjustments reconciliation Other adjustments enable a user of the financial statements to assess the financial performance of the Trading Group as it was historically reported prior to the consolidation of the Trusts and the impact of recent accounting standards, IFRS 15, Revenue from Contracts with Customers and IFRS 16, Leases. This mirrors the financial reporting provided to management on a monthly basis to monitor the performance of the underlying Trading Group.

Adjustments to the Group’s consolidated financial statements are made to reflect the following:

• Deferred revenue recognised on the delivery of a funeral is replaced with the payment received by the Trading Group from the Trust at the same time. Pre-need segment income, in the form of upfront payments received by the Trading Group from the Trusts in support of marketing are recognised when received at inception of a funeral plan rather than being deferred as part of the aforementioned deferred revenue. • Payments made by the Trusts on cancellation are no longer recognised. • Unlike disbursements on at-need funerals, disbursements on pre-need funerals under IFRS 15 are recognised on a principal basis within both revenue and cost of sales, but for consistency in the alternative performance measure both are reduced as these items are not included in either measure. Similarly, pre-need funerals delivered by subcontracted funeral directors, which form part of deferred income, are excluded within the alternative performance measure with a corresponding adjustment to cost of sales. • Commissions payable on securing new Trust plans are recognised at the inception of the plan rather than being deferred and recognised at the time the funeral service is delivered. • Rentals payable under operating leases now capitalised under IFRS 16 are recognised in operating costs, replacing the right-of- use asset depreciation charge on the IFRS 16 right-of-use asset. The finance cost associated with the same lease arrangements is removed from finance costs. • The amounts recorded in respect of the remeasurement of assets held in the Trust is removed as is the significant financing component that only arises when deferred revenue is recognised on consolidation of the Trusts. • The taxation impact of the above adjustments, including the impact of changes in the rate of deferred tax associated with the items noted above are removed. In addition, as described in note 1 the consolidation of the Trusts has given rise to a significant reduction in the level of interest on which the Group is able to obtain a corporation tax deduction. The impact of this is included in arriving at other adjustments. Dignity plc Annual Report & Accounts 2020 159

Non-GAAP measures (continued)

(c) Other adjustments reconciliation (continued) Funeral Pre–arranged Central services Crematoria funeral plans overheads Group 52 week period ended 25 December 2020 £m £m £m £m £m

Revenue Trust consolidation: Release of deferred revenue on death or cancellation 122.2 – – – 122.2 Removal of payments received from the Trusts on death ( 5 9 . 8 )‌‌ – – – ( 5 9 . 8 )‌‌ Payments on cancellation ( 8 . 8 )‌‌ – – – ( 8 . 8 )‌‌ Derecognise pre-need segment income – – ( 2 8 . 8 )‌‌ – ( 2 8 . 8 )‌‌ IFRS 15: Recognition of disbursement element of pre-need plans 18.6 – – – 18.6

Revenue – Total other adjustments 72.2 – ( 2 8 . 8 )‌‌ – 43.4

Cost of sales IFRS 15: Amounts paid on subcontracted funerals ( 8 . 8 )‌‌ – – – ( 8 . 8 )‌‌ Recognition of disbursement element of pre-need plans ( 1 8 . 6 )‌‌ – – – ( 1 8 . 6 )‌‌ Administrative expenses Trust consolidation: Recognition of the Trust costs (6.9)‌‌ – – – (6.9)‌‌ Transfer of pre-need costs into funeral segment ( 2 8 . 9 )‌‌ – 28.9 – – IFRS 15: Net release of deferred costs in respect of commissions 4.9 – – – 4.9 IFRS 16: Elimination of operating lease rentals 9.2 2.6 – 0.3 12.1 Elimination of operating lease prepayments and accruals 0.4 1.2 – 0.1 1.7 Depreciation of right-of-use asset ( 7 . 7 )‌‌ ( 1 . 2 )‌‌ – ( 0 . 3 )‌‌ ( 9 . 2 )‌‌

Operating profit – Total other adjustments 15.8 2.6 0.1 0.1 18.6

Finance income/(costs) Trust consolidation: Deferred revenue significant financing (53.1)‌‌ Remeasurement of financial assets held by the Trusts and related income 47.3 IFRS 16: Recognition of finance costs ( 4 . 7 )‌‌

Finance costs – Total other adjustments ( 1 0 . 5 )‌‌

Taxation: Trust consolidation: Taxation impact on above adjustments ( 0 . 5 )‌‌ Corporate interest restriction disallowance ( 4 . 3 )‌‌ Deferred tax rate change 6.8 IFRS 15: Taxation impact on above adjustments ( 0 . 9 )‌‌ Deferred tax rate change ( 2 . 1 )‌‌ IFRS 16: Taxation impact on above adjustments –

Taxation – Total other adjustments ( 1 . 0 )‌‌

Profit after taxation – Total other adjustments 7.1

160 Dignity plc Annual Report & Accounts 2020

Alternative performance measures continued Other information

Non-GAAP measures (continued)

(c) Other adjustments reconciliation (continued) Funeral Pre-arranged services funeral plans Group 52 week period ended 27 December 2019 £m £m £m

Revenue Trust consolidation: Release of deferred revenue on death or cancellation 96.8 – 96.8 Removal of payments received from the Trusts on death (49.4)‌‌ – (49.4)‌‌ Payments on cancellation (4.5)‌‌ – (4.5)‌‌ Derecognise pre-need segment income – (21.2)‌‌ (21.2)‌‌ IFRS 15: Recognition of disbursement element of pre-need plans 15.9 – 15.9

Revenue – Total other adjustments 58.8 (21.2)‌‌ 37.6

Cost of sales IFRS 15: Amounts paid on subcontracted funerals (9.0)‌‌ – (9.0)‌‌ Recognition of disbursement element of pre-need plans (15.9)‌‌ – (15.9)‌‌

Administrative expenses Trust consolidation: Recognition of the Trust costs (6.6)‌‌ – (6.6)‌‌ Transfer of pre-need costs into funeral segment (21.4)‌‌ 21.4 – IFRS 15: Net release of deferred costs in respect of commissions 2.5 – 2.5

Operating profit – Total other adjustments 8.4 0.2 8.6

Finance income/(costs) Trust consolidation: Deferred revenue significant financing (54.1)‌‌ Remeasurement of financial assets held by the Trusts and related income 85.0

Finance income – Total other adjustments 30.9

Taxation: Trust consolidation: Taxation impact on above adjustments (6.3)‌‌ Corporate interest restriction disallowance – prior year adjustment (4.3)‌‌ IFRS 15: Taxation impact on above adjustments (0.4)‌‌

Taxation – Total other adjustments (11.0)‌‌

Profit after taxation – Total other adjustments 28.5

Dignity plc Annual Report & Accounts 2020 161

Non-GAAP measures (continued)

(d) Non-underlying cash flow items 25 December 27 December 2020 2019 £m £m

Cash flows from operating activities 62.7 64.6 Cash flows of other adjustments 16.3 (7.6)‌‌

Cash flows from operating activities – Trading Group 79.0 57.0 Other adjustments – IFRS 16 ( 1 2 . 5 )‌‌ – External transaction costs 0.8 0.8 Directors severance pay 0.7 – Transformation Plan costs 5.4 11.2 Operating and competition review costs 3.0 2.8

Underlying cash generated from operations 76.4 71.8

(e) Funeral market share Comparable funeral market share excludes any volumes from locations not contributing for the whole of 2019 and 2020 to date and therefore excludes 12 locations closed and one location opened in 2019 and a further 26 locations closed and one location opened in 2020.

(f) Average assets per plan Average assets per plan are calculated as the net assets of the Trusts divided by the number of active plans in the Trusts. Net assets in this calculation will not equal amounts in the consolidated balance sheet of the Group, as it includes instalment amounts due in future that become payable immediately on death. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 95

162 Dignity plc Annual Report & Accounts 2020 Shareholder information Other information

General enquiries may be addressed to the Company Secretary, Tim George, at the Company’s registered office.

General information The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in England and Wales.

Company Registrars Enquiries concerning shareholdings, change of address or other particulars, should be directed in the first instance to the Company’s Registrars, EQ. They also provide a range of online shareholder information services at www.shareview.co.uk where shareholders can check their holdings and find practical help on transferring shares and updating personal details. Alternatively, they can be contacted by telephone on 0371 384 2674 (textphone for shareholders with hearing difficulties 0371 384 2255) if calling from within the UK, or +44 (0) 121 415 7047 if calling from outside the UK.

Shareholder communications The Company makes documents and information available to shareholders by electronic means and via our website. The Company’s website is www.dignityplc.co.uk.

Making documents and information available electronically:

• Enables the Company to reduce printing and postage costs; • Allows faster access to information; and • Reduces the amount of resource consumed and lessens the impact on the environment of printing and mailing.

The Company provides hard copy documentation to those shareholders who have requested this and is, of course, happy to provide hard copies to any shareholder upon request.

Electronic communications The Company encourages shareholders to elect to receive notification of the availability of Company documentation by means of an email.

Shareholders who wish to receive e-mail notification should register online at www.shareview.co.uk click on ‘Open a Portfolio Account’ under the ‘Portfolio’ section. You will need your Shareholder Reference Number, which is shown on your share certificate or dividend tax voucher.

Choosing e-mail notification will result in you joining the EQ Shareview Service in accordance with its terms and conditions.

Share price information The latest Dignity plc share price can be obtained via the Company’s investor website www.dignityplc.co.uk.

Unsolicited approaches to shareholders Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. These calls come from fraudsters operating in ‘boiler rooms’ that are mostly based abroad.

While high profits are promised, those who buy or sell shares in this way usually lose their money. The Financial Conduct Authority (‘FCA’) has found most share fraud victims are experienced investors who lose an average of £20,000, with around £200 million lost in the UK each year. V3 Dignity_AR_Master_Template_2020 tp.qxp_Layout 1 16/04/2021 14:34 Page 96

Dignity plc Annual Report & Accounts 2020 163

PROTECT YOURSELF

If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money:

1. Get the name of the person and organisation contacting you. 2. Check the FCA Register at http://www.fca.gov.uk/register to ensure they are authorised. 3. Use the details on the FCA Register to contact the firm. 4. Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date. 5. Search the FCA’s list of unauthorised firms and individuals to avoid doing business with. 6. If it sounds too good to be true, it probably is!

If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (‘FSCS’) if things go wrong.

Annual General Meeting The Company’s Annual General Meeting will be held on 23 June 2021 at 11:00am at the offices of DLA Piper UK LLP, Victoria Square House, Victoria Square, Birmingham, West Midlands, B2 4DL.

Dividends Although the Group has significant cash resources at hand and continues to be cash generative, in order to maintain maximum flexibility and liquidity during this time, the Board has concluded that it is prudent to temporarily cease dividend payments. The Group has an established track record of returning cash to shareholders at appropriate times over many years and once the current uncertain competitive environment becomes clearer, it anticipates resuming dividend payments or returning excess cash to shareholders.

Contact details and advisers

Registered Office: Auditors: Dignity plc Ernst & Young LLP 4 King Edwards Court No.1 Colmore Square King Edwards Square Birmingham B4 6HQ Sutton Coldfield West Midlands B73 6AP Joint Brokers: finnCap Tel: +44 (0) 121 354 1557 One Bartholomew Close E-mail: [email protected] London EC1A 7BL www.dignityplc.co.uk Investec Company Secretary: A division of Investec Bank plc Tim George FCIS 30 Gresham Street London EC2V 7QP Registered Number: 04569346 Principal Bankers: Royal Bank of Scotland plc Registrars: West Midlands Corporate Office EQ 2 St Philips Place Aspect House Birmingham B3 2RB Spencer Road Lancing Legal Advisers: West Sussex BN99 6DA DLA Piper UK LLP Victoria Square House Tel: +44 (0) 371 384 2674 Victoria Square Birmingham B2 4DL www.shareview.co.uk

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164 Dignity plc Annual Report & Accounts 2020 Financial calendar Other information

23 June 2021 • Annual General Meeting

25 June 2021 • 2021 financial half year end

28 July 2021 • Announcement of 2021 interim results

31 December 2021 • Financial period end

Forward-looking statements Any forward-looking statements made in this Annual Report or the Dignity plc investor website, or made subsequently, which are This Annual Report and the Dignity plc investor website may attributable to the Company or any other member of the Group, or contain certain ‘forward-looking statements’ with respect to Dignity persons acting on their behalf, are expressly qualified in their entirety plc (the “Company”) and the Group’s financial condition, results of its by the factors referred to in this statement. Each forward-looking operations and business, and certain plans, strategy, objectives, goals statement speaks only as of the date it is made. Except as required and expectations with respect to these items and the economies and by its legal or statutory obligations, the Company does not intend markets in which the Group operates. to update any forward-looking statements.

Forward-looking statements are sometimes, but not always, Nothing in this Annual Report or on the Dignity plc investor website identified by their use of a date in the future or such words as should be construed as a profit forecast or an invitation to deal in ‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘should’, ‘will’, ‘would’, ‘expects’, the securities of the Company. ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’ or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group’s ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the legal, regulatory and competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; changes in accounting practices and interpretation of accounting standards under IFRS, and changes in interest and exchange rates.

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IFC Dignity plc Annual Report & Accounts 2020

Who we are

We are one of the UK's major funeral related service providers and the only publicly listed company in the UK operating in the funeral sector. The Group's main activities are funeral services, crematoria and pre-arranged funeral plans. Our aim is to be at the forefront of the sector in terms of quality, transparency, standards, choice and value-for-money.

Inside this year’s Annual Report

Strategic Report Financial Statements Transparent reporting

01 At a glance Group Accounts We aim to report in a transparent and 04 Executive Chairman’s review 84 Independent auditors’ report to the members integrated way to clearly reflect how we 15 Key performance indicators of Dignity plc operate. Within this year’s report we have 18 Operating review 92 Consolidated income statement also sought to address the additional 22 Financial review 92 Consolidated statement of comprehensive requirements arising from Section 172 27 Principal risks and uncertainties income 33 Viability statement 93 Consolidated balance sheet of the Companies Act 2006 and the 2018 34 Non-financial information statement 94 Consolidated statement of changes in equity UK Corporate Governance Code. 35 Corporate and social responsibility 95 Consolidated statement of cash flows 42 Section 172 Statement 96 Notes to the financial statements This Annual Report & Accounts contains forward-looking statements with respect Governance Company Accounts to the Group’s plans and its current goals 45 Chairman’s introduction to governance 144 Dignity plc Company balance sheet and expectations relating to its future 50 Governance structure 145 Dignity plc Company statement of changes financial condition, performance, results, 51 Board of Directors in equity strategic initiatives and objectives. 52 Operating Board 146 Notes to the Dignity plc financial statements 53 Directors’ statement on corporate governance 154 Financial record 58 Audit Committee report 62 Nomination Committee report Other Information 63 Report on Directors’ remuneration 81 Directors’ report 156 Alternative performance measures 162 Shareholder information 163 Contact details and advisers 164 Financial calendar

Consultancy, Design & Production by Bexon Woodhouse www.bexonwoodhouse.com Printed in the UK by CPI Colour, a certified CarbonNeutral® printing company, using vegetable based inks and water based sealants. The printer and paper manufacturing mill are both certified with ISO 14001 Environmental Management systems standards and both are Forest Stewardship Council® (FSC ®) certified. V2 Dignity_AR_2020_Cover_BP_V1 tp 2.qxp_Layout 1 16/04/2021 13:33 Page 1 Dignity plc Annual Report & Accounts 2020 Dignity plc 4 King Edwards Court ANNUAL REPORT 2020 King Edwards Square Sutton Coldfield Dignity plc Annual Report & Accounts West Midlands B73 6AP

www.dignityplc.co.uk

Responsible and resilient through challenging and changing times